Following recent SEC approvals for ETF share class relief, asset managers and service providers are evaluating how mutual fund and ETF share classes can operate within the same fund structure at scale.
The discussion is expected to be front and center at next week's ICI ETF Conference in Nashville. In advance of the event, the Investment Company Institute recently published a white paper outlining the operational, regulatory, tax, and infrastructure considerations associated with ETF share classes, underscoring the industry's focus on implementation as adoption expands.
Most of the discussion has focused on product strategy, distribution, and investor access. Less attention has been paid to the accounting and operational infrastructure required to support these structures once they are launched.
A mutual fund and its ETF share class share the same underlying portfolio. Supporting both efficiently requires accounting, servicing, basket processing, reporting, and oversight processes that remain aligned across the entire structure.
Many firms still support mutual funds and ETFs through separate accounting workflows, separate basket calculation environments, and separate reconciliation processes. As ETF share class adoption expands, those operating models become more difficult to maintain.
For asset managers, the challenge is introducing new product structures without introducing new layers of operational complexity. For service providers, the challenge is supporting those structures across multiple clients without increasing operational overhead with every new mandate.
Moving Beyond the ETF Wrapper Itself
ETF share classes are part of a broader trend across investment management. Firms are being asked to support more asset classes, more product structures, more jurisdictions, and more reporting requirements than ever before. Each new requirement puts pressure on accounting platforms built around separate processes and disconnected operating models.
This is why infrastructure has become such an important part of the conversation.
Most of the operating teams and service providers we speak with are still calculating standard and custom baskets outside their core accounting environment. Many continue to rely on separate operational processes to support mutual funds and ETFs tied to the same portfolio. Those approaches may satisfy today's requirements, but they become increasingly difficult to scale as fund structures evolve.
FundGuard was designed to support all fund structures and asset classes — existing and emerging — on a single accounting platform. Creation and redemption activity can be managed at the share-class level while maintaining a unified view of the portfolio and fund structure underneath it.
ETF share classes are drawing attention to a question that extends well beyond a single product innovation: can accounting infrastructure support the way investment products are evolving?
That is the conversation we will drive throughout the ICI ETF Conference in Nashville, and one we will continue to explore through our thought leadership.