SAN FRANCISCO - (Business Wire) ReFlow Management, a global provider of performance tools to U.S. mutual funds and European UCITS, has introduced a new client interface to its in-kind Redemption Service (RS). Its expanded functionality allows portfolio managers to review their redemption obligations and schedule in-kind redemptions online. Except for the selection and transmittal of securities, the entire process may now be executed electronically.
ReFlow’s in-kind RS tool enables fund managers to raise capital for meeting redemptions without selling securities. It offers mutual funds a way to lower shareholder taxes while improving performance, and helps to level the competitive playing field between mutual funds, Exchange Traded Funds (ETFs), and Separately Managed Accounts (SMAs).
ReFlow provides funds with needed cash by becoming a shareholder in the fund, and earns a transaction fee. Funds later redeem ReFlow’s holdings with cash or, if they choose the “in-kind” redemption option, with securities of equivalent value. Transaction costs and capital gains distributions are lowered in either case, since ReFlow lets funds avoid selling securities for cash. Funds also gain control over the timing of transactions.
Funds choosing the in-kind option can further increase tax-efficiency by selecting the lowest-cost-basis lots of the securities on their sell lists for redemption of ReFlow’s position.
Shareholder redemptions and taxes are especially hot topics in light of market trends. October saw record-setting monthly net outflows of $86 billion from stock funds and $44.3 billion from bond funds, according to Lipper Inc.
“As a result, many shareholders will now be facing big tax bills on losing funds that had to liquidate securities in order to meet redemptions. That’s a tough double-whammy for any investor to take,” said Paul Schaeffer, President of ReFlow.
“While mutual funds are especially aware of tax issues this year, the pressure to find ways of easing investors’ tax burdens has been building for some time, as mutual fund capital gains distributions have risen sharply in the last few years,” said Tom Roseen, senior research analyst with Lipper, a Thomson Reuters Company.
Mutual fund managers have often bemoaned their disadvantage relative to other investment vehicles that are fundamentally more tax-efficient—particularly ETFs, whose structure allows them to redeem shares without generating any taxable distributions.
In contrast, when mutual funds experience a flurry of redemptions and must liquidate securities to raise cash, they pass along to investors any capital gains incurred. The funds also incur transaction costs, which raise expenses and lower performance for all investors.
“Redemption-in-kind is a natural for tax-managed or tax-advantaged mutual funds, but makes sense for any fund that cares about lowering expenses and reducing shareholder taxes,” concluded Schaeffer.
Founded in 2002, ReFlow serves U.S. mutual funds and European investment funds (UCITS). The firm is headquartered in San Francisco with an office in Luxembourg. Its performance-enhancing toolkit has been approved by the boards of 18 mutual fund families, representing nearly $275.5 billion in assets, for use by 199 funds. ReFlow has provided more than $2 billion in liquidity to its mutual fund clients to date, and more than $880 million since January 2008. For more information about ReFlow and its Redemption Service, please visit www.reflow.com.
Kanter & Company
Victoria Odinotska, 703-534-3735
vodinotska@kanterandcompany.com
