Multiple series trusts (MSTs) are open-end investment management companies (mutual funds) organized as shared trusts for unrelated series. They offer an efficient means of operating a registered investment fund in an increasingly complex compliance and governance landscape – and as such, their popularity has been steadily growing over the past decade.
With the right partner, this type of structure can provide an attractive solution to investment managers that want to devote more attention and resources to investment-management and asset-gathering responsibilities. This article will provide an overview of MSTs, describe their benefits and highlight how investment managers can find the advantages inherent in the MST structure.
An MST is an open-end investment management company (mutual fund) organized as a series trust. The MST structure is typically sponsored by a service provider and utilized by multiple, unrelated investment management firms to house their mutual fund products. Each fund is a portfolio, or “series,” of the trust. The trust, through its board and service providers, performs management of all fund operations, governance, servicing and administration. This allows the manager to focus on their core competency—investment management.
Historically, MSTs were utilized by advisers with limited assets under management as an inexpensive means of offering a mutual fund family with small assets. Today, in addition to their historical role, MSTs are also a viable option for large managers to efficiently and cost-effectively manage the compliance, operational and governance of their mutual fund products.
The single biggest difference between an MST fund and a proprietary fund is the shared MST legal entity and infrastructure. The MST fund leverages the existing board, service providers, policies and procedures of the MST. Each investment manager would require these elements of the fund operations to be replicated if they chose the proprietary model for their mutual funds.
Another difference is that all MST officers, including the CCO, are provided by the service provider rather than the investment adviser as they would in a proprietary structure.
The responsibilities of the MST board members are identical to those of a proprietary fund trustee. Each mutual fund trustee has a fiduciary duty to represent and protect the interests of the investors of the fund(s)—the duty of care and duty of loyalty. Meanwhile, the investment manager handles managing the investments, promoting and distributing the fund(s), and providing quarterly portfolio and management information to the MST trustees.
The MST business model – with its shared legal entity and infrastructure – provides numerous benefits for the investment manager. A number of the key advantages are listed below:
The MST sponsor manages all of the legal and operational tasks involved in establishing a fund within an MST, guiding the investment manager through the regulatory and implementation issues.
The initial task involves drafting the fund registration materials that will describe the investment strategy proposed by the investment manager. The MST sponsor will establish all fund policies, procedures and operations such as:
MSTs provide an attractive solution to investment managers seeking to devote more attention and resources to investment-management and asset-gathering responsibilities. As compliance requirements in the mutual fund industry become more complex, efficiency becomes paramount. Given the current trends in the regulatory environment, it seems unlikely the popularity of MSTs will diminish anytime soon.