First Trust seeks vote-free sub-adviser swaps at 22 funds

First Trust Capital Management asked the SEC for permission to hire and replace sub-advisers at 22 interval and tender-offer funds without putting the changes to a shareholder vote, according to an exemptive application filed Oct. 22.

The relief, known as manager-of-managers relief, would leave each fund's board, including a majority of independent trustees, to approve every sub-adviser hire. The Investment Company Act of 1940 currently requires a shareholder vote on any new sub-advisory agreement and on any material amendment to one, a process the application describes as slow and costly and potentially harmful to shareholders when a sub-adviser is underperforming or has lost its management team.

Advisors holding these funds in client accounts would get at least 60 days' notice and a tender or repurchase offer at net asset value before a new sub-adviser could take over. The offer would be priced at NAV minus any early withdrawal charge already disclosed in the prospectus, and the new sub-adviser could begin no earlier than one business day after the repurchase pricing date. If the offer is oversubscribed, the hire does not take effect and the fund bears no penalty or cost for walking away. Whether a fund would run the repurchase and keep the old sub-adviser, or cancel both, is not addressed in the application as published.

First Trust also proposed that any change raising a fund's overall advisory fee rate still go to a shareholder vote, so the relief would cover manager substitutions rather than a higher total cost of advice.

The application cites five open-end orders as precedent. The earliest went to Carillon Series Trust in May 2019 and extended relief to sub-advisers affiliated with a fund's adviser. The other four were issued in 2025 to Venerable Variable Insurance Trust, Advisors Series Trust, Wedbush Series Trust and Morgan Stanley's Consulting Group Advisory Services LLC for its Pathway Funds. The application says the SEC has not extended the relief to a nontraded closed-end fund or a business development company.

The proposed conditions borrow largely from the SEC's 2023 amendments to the Names Rule, which let nontraded funds change an 80% investment policy without a vote if investors are offered a comparable exit first. In effect, the repurchase offer would become the price of a vote-free swap. First Trust asks that the relief also cover any future nontraded closed-end fund or BDC it advises that adopts the structure. That puts the exit terms, rather than the 22 existing funds, at the center of what the SEC would be granting.