Precidian Closer to Hidden-Asset ETF to Curb Front-Running

Precidian Moves Closer to Non-Transparent ETF With SEC Filing

(Bloomberg) -- In the fight for assets, active managers are firing back at their passive rivals.

Precidian Investments has unveiled a new suite of strategies it’s looking to register as it seeks approval for an innovative type of actively managed product that’s packaged as an exchange-traded fund. The investment manager has filed an initial registration statement for eight funds, sub-advised by two affiliates of Legg Mason Inc., U.S. Securities and Exchange Commission records show.

Bedminster, New Jersey-based Precidian has been seeking regulatory approval to start an actively managed fund within an ETF wrapper since 2013, as the race is on to find ways to blend active stock-picking with increasingly popular passive investment strategies. Rather than publishing what it owns every day, like an ETF, Precidian would report its holdings once a quarter, like a mutual fund, to prevent front-running or strategy replication, filings show. 

Eaton Vance Corp. last year started three active non-transparent funds after getting the SEC’s stamp of approval for a different structure.

“These companies are like startups, and they’re racing,” said Greg Tusar, head of global execution services and platforms at trading firm KCG Holdings Inc.

Seeking Traction

Active funds have had a rough few years as investors have increasingly replaced their expensive managers with lower-cost, index-tracking products such as ETFs. More than $1 trillion has flowed into U.S. ETFs over the last three years, while assets in mutual funds have stagnated.

There are about 170 active ETFs that disclose their holdings, but they have failed to gain traction, housing just 1 percent of the $2.8 trillion market for U.S. ETFs, data compiled by Bloomberg show.

Precidian filed its latest request in December 2014 and amended it almost a year later. NYSE Arca added a rule filing to list some of Precidian’s funds on Wednesday.

“2017 is presenting itself as a very interesting year on the non-transparent side,” said Ryan Sullivan, vice president of Brown Brothers Harriman & Co.’s global ETF services. “With personnel changes at the SEC, there may be a door that is opening slowly for other structures to potentially be approved and come to market and bring a little more competition.”

Chicken, Egg

Eaton Vance, a $364 billion asset manager, sells its own funds through its NextShares Solutions LLC unit. That division manages about $67 million, according to the company’s website. Several other asset managers have agreed to license the structure. While Eaton Vance maintains that its products are for long-term investors who don’t care about real-time trading, a key piece of attracting demand is appealing to a subset of fast-moving trading firms known as market-makers.

The first NextShares fund is still relatively small, with about $22 million in assets, and sees less trading on an average day than the stock of MutualFirst Financial Inc., which runs a small bank in Indiana.

“It’s a chicken-and-the-egg situation,” said Bill Harts, chief executive officer of Modern Markets Initiative, an advocacy group for high-speed traders. “With limited volume today, they don’t get all the benefits of high-frequency trader market making the way a stock like Apple does. If the amount of trading increases, that could change.”

--With assistance from Miles Weiss

To contact the reporters on this story: Rachel Evans in New York at, Annie Massa in New York at

To contact the editors responsible for this story: Nikolaj Gammeltoft at, Kenneth Pringle, Eric J. Weiner