Thursday, June 22, 2017

Staff grants relief to permit interim sub-advisory agreement to continue without shareholder approval

By Jacquelyn Lumb

The Division of Investment Management advised that it would not recommend enforcement action against NWQ Investment Management Company, LLC if it continued to serve as an investment adviser to certain series of two Nuveen Investment Trusts under written sub-advisory agreements that were not approved by a majority of the outstanding voting securities of each series. Nuveen explained that despite its best efforts, it was unable to reach a quorum required for its shareholders to vote on a reorganization and new sub-advisory agreements. The no-action relief would enable NWQ to continue to serve as investment sub-adviser for a limited period of time.

Reorganization leads to new sub-advisory agreements. Nuveen Tradewinds Value Opportunities Fund and Nuveen Tradewinds Global All-Cap Funds are series of the trusts for which Nuveen Fund Advisors serves as investment adviser and Tradewinds Global Investors, LLC served as sub-adviser. In May 2016, Nuveen decided to wind up operations at Tradewinds after significant asset outflows followed when its president and chief investment officer left. As part of the transition plan, the board of trustees approved the termination of the funds’ sub-advisory agreement with Tradewinds and appointed NWQ as the sub-adviser under an interim agreement that was scheduled to expire on December 29, 2016.

At the May meeting, the board decided that a reorganization was in the best interest of the funds. Each fund sought shareholder approval for the reorganization and for new sub-advisory agreements in a joint proxy statement/prospectus dated September 23, 2016. As of November 8, 2016, an overwhelming majority of the votes received were cast in favor of the proposals. However, Nuveen Fund Advisors concluded that there was a high probability that neither fund would receive the number of votes necessary to reach a quorum by the sub-advisory agreement’s expiration date.

Lack of quorum to approve agreements. Nuveen explained that the factors that contributed to its inability to reach a quorum included the level of redemptions since the record date for the shareholder meeting, a higher than usual percentage of each funds’ shares represented by objecting beneficial owners, and shareholder bases that were more dispersed than was typical.

Nuveen sought relief to permit NWQ to continue to serve as the investment sub-adviser after the interim period permitted by Investment Company Act Rule 15a-4, not to exceed the earlier of the consummation of the reorganization, shareholder approval of the new sub-agreement, or 60 days after the expiration date. Absent an extension, Nuveen said it may have to liquidate the funds.

Conditions to relief. As a condition to the requested relief, the funds and Nuveen Fund Advisors agreed that, during the additional period, they would continue their proxy solicitation efforts in an attempt to reach a quorum. Nuveen Fund Advisors agreed to waive the portion of each fund’s advisory fee in an amount equal to the amount of the sub-advisory fee that would be payable by Nuveen Fund Advisors to NWQ under the original terms of the interim sub-advisory agreement. Other than the changes contemplated by the no-action relief, the terms and conditions of the interim sub-advisory agreement would remain the same.

At a shareholder meeting held on December 29, one of the funds achieved a quorum and shareholders approved the new sub-advisory agreement. At a shareholder meeting on January 26, 2017, the other fund achieved a quorum and shareholders approved the new sub-advisory agreement.

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