ReFlow Management Co., LLC, an investment service company founded by Gordon P. Getty, today launched an innovative way for mutual fund managers to address the daily liquidity needs that arise from net shareholder redemptions. ReFlow is a benevolent shareholder that purchases shares in response to net redemptions and redeems those shares in a net subscription situation. ReFlow allows a fund to keep more assets invested and reduce cash reserves, transaction costs and taxable events.
“We believe this product provides mutual funds and their shareholders with the best possible response to net redemptions,” said J. Alan Reid, President of ReFlow. “Currently, fund managers will sell securities or draw on their cash reserves to meet their liquidity needs. ReFlow allows the fund managers to cover the net redemption without disturbing assets or drawing on cash reserves. As a result, transaction costs and taxable events are reduced and the fund may experience improved performance.”
ReFlow uses an Internet-based system that purchases and holds fund shares to offset the fund’s redemptions and then redeems those shares back to the fund in a net subscription situation. ReFlow charges a fee at the time of purchase for this service that is determined by a daily Dutch auction. ReFlow recommends that fund bids should be lower than any alternative cost of liquidity.
“When a mutual fund is forced to sell securities to cover net redemptions, the shareholders’ returns are ultimately penalized,” said Gordon P. Getty, Founder and Chairman of ReFlow. “ReFlow helps the fund manager keep assets of the fund intact. We are very excited to bring this innovation to the market, especially in the current environment.” Mr. Getty has developed ReFlow in collaboration with leaders in the fields of economics and finance.
“The purchase and sale of fund shares represent an ongoing, significant challenge for mutual funds,” said Roger Edelen, Assistant Professor of Finance at the University of Pennsylvania’s Wharton School. “There are several studies that document a close relationship between fund flows and trading costs. A detrimental impact on performance is clear. ReFlow provides a practical solution to the problem by reducing the need for trading.”
ReFlow has been developed with feedback from organizations including Dechert, one of the largest investment management law firms in the U.S.; PFPC Inc., the nation’s largest full-service mutual fund transfer agent and second largest provider of mutual fund accounting and administrative services; and Brown Brothers Harriman, a leading mutual fund custodian.
The Securities and Exchange Commission issued a No-Action Letter on July 15, 2002, in response to ReFlow’s unique solution.