A few weeks ago, Eaton Vance took the unprecedented step of using the Freedom of Information Act to dig up a comment letter from the SEC about one of its competitors, New Jersey-based Precidian Investments.
The only reason it could possibly have for doing this was to convince investors (both in ETFs and in Eaton Vance’s stock) and fund issuers that the Precidian version of nontransparent active was dead in the water. That would leave Eaton Vance’s NextShares “exchange traded managed funds” concept the only person at the party taking dance-card reservations.
The response from Precidian this morning is not to go quietly, but to double-down.
The core objections highlighted in the SEC letter surfaced by Eaton Vance were somewhat paradoxical. The SEC argued that the proposed “verified intraday indicative value” (VIIV) was too poor a proxy to allow for good market-making. However, simultaneously, too good a proxy would make it child’s play to reverse-engineer the underlying portfolio.
Similarly, the SEC was worried that the blind-trust structure proposed by Precidian created a class of investors with privileged—and abusable—information about the underlying portfolio of an actively managed fund using the system.
To me, both of these objections represented a failure by the SEC to actually understand what was being proposed, but hey, that’s on you, Precidian. It’s a filer’s job to make sure it communicates something well, and obviously, what they had “was a failure to communicate.”
Today’s re-filing seeks to clear up these misconceptions mostly by rewording and clarifying what was already in the filing. And this time, it’s bringing friends—the filing includes two papers by academics as backup to their case.