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First Trust Capital Seeks SEC Relief to Swap Interval Fund Sub-Advisers Without a Vote

By Mari Nicholson

First Trust Capital Seeks SEC Relief to Swap Interval Fund Sub-Advisers Without a Vote

First Trust Capital Management L.P. has asked the U.S. Securities and Exchange Commission for permission to hire and replace sub-advisers at its interval funds and tender-offer funds without first putting the changes to a shareholder vote, according to an exemptive application filed Oct. 22.

The application covers 22 funds advised by the Chicago-based firm, including:

  • First Trust Enhanced Private Credit Fund;
  • First Trust Private Credit Fund;
  • First Trust Private Assets Fund;
  • First Trust Real Assets Fund;
  • First Trust Alternative Opportunities Fund;
  • First Trust Hedged Strategies Fund;
  • Destiny Alternative Fund;
  • Infinity Core Alternative Fund; and
  • 14 series of the FT Vest Hedged Equity Income Fund and FT Vest Total Return Income Fund.

The relief would also apply to any future nontraded closed-end fund or business development company the firm advises that adopts the structure.

Multi-manager relief, often called “manager of managers” relief, lets a fund’s adviser hire and replace sub-advisers with board approval instead of a shareholder vote. The SEC has granted it to mutual funds and other open-end funds for years. The application cites five such open-end orders as precedent. The first, issued to Carillon Series Trust in May 2019, extended the 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. According to the applicants, the SEC has never extended the relief to nontraded closed-end funds or BDCs.

Under the Investment Company Act of 1940, shareholders must approve any new sub-advisory agreement and any material amendment to one. That means calling a meeting, distributing proxy materials, and usually hiring a proxy solicitor. The application said that process is slow and costly and could harm shareholders when a sub-adviser is underperforming or has lost its management team. Under the requested relief, each fund’s board, including a majority of independent trustees, would still have to approve every sub-adviser hire.

A Tender-Offer Exit

Investors in nontraded funds cannot redeem shares daily or sell them on an exchange. For that reason, First Trust proposed conditions beyond those in the mutual fund orders. To hire a new sub-adviser without a vote, a fund would have to give shareholders at least 60 days’ notice and conduct a tender or repurchase offer at net asset value, minus any early withdrawal charge already disclosed in its prospectus.

If that offer is oversubscribed, the hire would not take effect, and the fund would bear no penalties or costs from abandoning it. A new sub-adviser could begin no earlier than one business day after the repurchase pricing date.

The applicants said the conditions are largely based on the SEC’s 2023 amendments to the Names Rule. Those amendments allow nontraded funds to change an 80% investment policy without a shareholder vote if investors are offered a similar exit beforehand.

Any change that raises a fund’s overall advisory fee rate would still require shareholder approval. Whenever a sub-adviser is hired or fired, the adviser would have to show the board the expected effect on its own profitability. Boards would also have to make a separate finding, recorded in their minutes, that each sub-adviser change or renewal serves shareholders and does not give an inappropriate advantage to the adviser, a sub-adviser, or fund insiders. The relief would cover sub-advisers affiliated with First Trust Capital Management as well as unaffiliated firms.

The funds would also be permitted to disclose sub-adviser fees as a single aggregate figure rather than individually. The application said public disclosure of individual fees would weaken the adviser’s ability to negotiate below sub-advisers’ posted rates.

Before relying on any order, each fund would need shareholder approval to operate under the multi-manager structure, and the application said some funds have not yet obtained it. Some of the funds already use sub-advisers, whose agreements were approved by shareholder vote under current rules, and the application said each fund is expected to add more.

Regulatory Backdrop

The filing arrives three weeks after the SEC proposed loosening interval fund repurchase rules and codifying multiple share classes for closed-end funds. That proposal would also rescind nearly all existing exemptive orders covering interval funds and closed-end multi-class arrangements. Comments are due Dec. 4. First Trust’s application includes a condition that any order it receives would expire if the SEC adopts a rule granting substantially similar relief.

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