Launching a registered ’40 Act fund, such as a mutual fund or an exchange-traded fund (ETF), requires careful consideration of numerous factors. One critical decision for asset managers is whether to utilize a series trust as the structure for their fund.

This article will define a series trust and outline the key considerations for selecting one. A well-chosen series trust can play a pivotal role in supporting the long-term success of an asset manager’s funds and aligning with broader business objectives.

For asset managers and sponsors of mutual funds and ETFs, a series trust provides an established governance and operational framework. This structure streamlines processes, reduces costs, and accelerates the time to market. However, to maximize these benefits, asset managers must thoroughly evaluate several important criteria to ensure the series trust aligns with their long-term product strategies and goals.

What is a Series Trust?

A series trust (sometimes referred to as a multi-series trust) is a legal structure that allows multiple investment advisers to operate one or more mutual funds/ETFs under a single registered trust, providing flexibility and efficiency in fund management. Each individual asset manager’s fund(s), or “series,” within the trust functions as a separate and distinct entity, with its own assets, liabilities, and investment strategies. This means that the financial performance, risks, and obligations of one series do not affect those of the other series, effectively isolating them from one another.

As previously stated, this structure offers cost efficiencies and a streamlined path to market, while also allowing asset managers to focus on core competencies like asset gathering, portfolio management, and investor relations without being burdened by administrative tasks.

A series trust structure offers several advantages:

• Speed to market – New series filed are automatically SEC effective in 75 days
• Efficient operating structure
• Favorable cost structure
• Ability to focus on core competencies and asset gathering
• Elimination of cumbersome administrative demands

However, not all series trusts are created equal. Let’s explore the top criteria asset managers should consider when selecting a series trust provider.

Scale

The size of a series trust, i.e., the number of funds and assets in a trust, is an important consideration when selecting a series trust. Certain trust level costs, such as legal fees, trustee fees, and insurance, may be shared across each series, lowering the operational cost of each fund. As funds grow and new funds are added to the trust, advisers and funds continue to benefit as costs may be shared over a larger fund and asset base.

Series trusts have existing contracts and engagements with service providers including law firms, auditors, and custodians. These pre-negotiated agreements offer a certain level of cost assurance. A growing series trust with scale can negotiate with service providers to ensure fees and fee increases are competitive and commensurate with the opportunity offered to the service providers.

Experience of Trustees and Board Competence

Trustees have a fiduciary duty to represent the interests of fund shareholders. A trustee’s role is to provide oversight but not be involved in day-to-day management. An experienced board that understands their role operates more efficiently and effectively by focusing on risks that could impact fund shareholders. A well-informed and diligent board ensures the long-term success and stability of the fund, fostering trust and confidence among shareholders.

• Board composition: The size and composition of boards vary, however typically it includes members with accounting, legal, marketing/distribution and investment management experience. It’s important for trustees to be collegial and collaborative, which fosters a unified approach. This is critical when working through complex or sensitive matters.
• Trustee experience and tenure: Trustees with industry, financial product, and governance backgrounds bring valuable insights by drawing on their experience as the market and regulatory environments evolve.
• Expertise: Trustees familiar with co-mingled products, and the broad variety of investments they may hold, can navigate the complexities of overseeing multiple portfolios within a single trust, enhancing overall efficiency.

Fund Administrator Experience

Governance and Trust Operations

As trust sponsor, the fund administrator plays a critical role in the startup and operations of a trust. The administrator may assist the trust’s nominating committee in identifying potential trustees; engages with service providers including facilitating due diligence and negotiating service agreements; and coordinates quarterly, and special board meetings. The administrator maintains the trust’s compliance program, offers personnel to serve in important trust management roles, and is typically the first point of contact for the trustees.

In a stand-alone trust, the asset management firm typically performs these functions which, while critical, are mostly administrative. In a series trust, asset managers typically provide quarterly reporting regarding their fund(s)’ performance, expenses, and operations, and meet with the board in person once a year. It is important to note that if either the board or the trust constituent sees a need to meet with more frequency that such additional engagement is readily accommodated.

Administrator Options

Choosing a fund administrator that offers numerous series trusts provides the flexibility to match a fund’s needs with the appropriate administrative framework. The right administrator can cater to specific investment strategies and help optimize fund management.

Operational Excellence

The administrator performs essential functions such as accounting, financial and regulatory administration, compliance, and shareholder services. Their experience and capabilities can significantly impact your fund’s operations and success. Consider the administrator’s experience with series trusts. The top indicators of administrator operational excellence include:

• Technology infrastructure: Advanced technology platforms support efficient fund operations, including automation of routine tasks and enhanced data analytics capabilities. A top-notch tech-driven administrator can also provide customized reports based on real-time data.
• Experienced service teams: Fund administration includes many functions and requires a variety of skill sets, e.g., accounting, financial reporting, tax, legal, recordkeeping, customer service, and compliance. Ensure that your service provider has a deep bench of experienced professionals.
• Quality of service: Look for administrators with a history of successful fund launches, strong client relationships, and a consultative business partner approach.

An administrator with advanced technology, experienced professionals and a strong track record in managing series trusts provides efficiency and reduces risk.

Experience with Similar Funds

Assess the administrator’s experience with funds and strategies similar to the ones under consideration. This familiarity can lead to more efficient operations and better support for the needs of the portfolio. Also, consider the number of advisers and funds already in the trust, which can indicate the trust’s capacity and depth of experience.

Open Architecture

An open architecture approach in a series trust offers significant benefits that can substantially impact the service quality and flexibility of fund management. This structure allows asset managers a voice in the selection of service providers, such as custodians, rather than being confined to a predetermined set of vendors.

The benefits of an open architecture approach include:

• Enhanced flexibility to select best-in-class service providers
• Potential for improved service quality
• Ability to change providers if needed without changing the entire trust structure
• Control costs – vendors should be aware that they are in competition and be further aware that they are benchmarked against each other which helps control cost as well as improving outcomes from a servicing perspective

Competitive Pricing

Pricing is crucial in selecting a series trust, as it directly impacts a fund’s expenses and, ultimately, its performance.

• Series trusts have a shared governance model; certain costs are shared or negotiated at the trust level, lowering the funds overall cost.
• The administrator also recognizes operational efficiencies in servicing a single trust and thus may charge lower fees than in a standalone trust.

Board Meeting Logistics

Boards meet quarterly at a minimum, and some more often depending on the number of series in a trust or other factors. Boards are required to meet in-person when approving an investment advisory agreement and it is best practice for advisers to attend these meetings in person. While it might seem minor, the frequency and timing of board meetings, and locations, may be an important consideration for an adviser who likely has a busy schedule or may prefer to minimize travel.

Regulatory Compliance and Insurance

Regulatory compliance is paramount in the investment management industry. When evaluating a series trust:

• Assess any regulatory issues associated with the trust and sponsor
• Review the trust’s compliance history
• Evaluate the trust’s insurance coverage

A trust with a strong compliance record and adequate insurance can provide peace of mind and potentially reduce regulatory risks.

Trust Growth Trends

The growth trajectory of a series trust can provide insights into its health and potential future performance. Consider:

• How many clients and funds are in the trust and what are the assets of each fund?
• Is the trust growing or shrinking?
• Are there any specific clients or funds that contribute disproportionately to trust’s trajectory?

Series trusts share certain trust level expenses which significantly benefit the funds. A growing trust is typically an indication of a healthy, thriving structure that offers cost savings. That benefit is eliminated if the trust is losing funds or if a fund makes up a disproportional share of the trust’s assets.

Conclusion

Choosing a series trust is not a one-size-fits-all decision. It requires carefully considering an asset manager’s needs, goals, and long-term strategy. Finding a solution that effectively supports fund management objectives is accomplished by conducting thorough a due diligence of series trusts and engaging with experienced series trust providers.

At Ultimus, we understand that each asset manager has unique needs and objectives. Our team is known for its consultative approach, working closely with clients to understand their specific requirements, and leveraging our industry knowledge to provide solutions and tailor our services accordingly.

Contact us today for more information on how Ultimus can support your series trust needs. Let us help you navigate the path to a well-managed and scalable series trust structure.

COD00000742 4/21/2025