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Eleven Ordinary Twenty-Somethings With $250B Riding on Their Lives
- olliej 7y agoCan someone post a tldr for those who can’t read the article proper?
- gota 7y ago"Thanks to a quirk in the legal structure used to set up the SPDR S&P 500 ETF Trust, known as SPY, more than $250 billion rests on the longevity of 11 ordinary kids born between May 1990 and January 1993." By law funds require a determines termination. They tied it to the death of "random" kids. The fund will end in 2118 or 20 years after the last of these eleven kids (chosen, "voluntarily" by their parents, as token people) dies It' relatively clear and straightforward, but the article does not explain what happens when the fund terminates.
- dhosek 7y agoThere's only one way to find out. And if these kids start dying mysterious deaths, we'll know that someone has decided to go that route.
- Overtonwindow 7y agoI was just thinking this would make a great plot of a spy novel. Since it began so long ago, I think Robert Litell would be perfect
- User23 7y agoI totally got a Robert Ludlum vibe.
- AndrewDucker 7y agoThat would be the result of a tontine. https://en.m.wikipedia.org/wiki/The_Wrong_Box?wprov=sfla1 https://en.m.wikipedia.org/wiki/The_Wrong_Box?wprov=sfla1
- scott00 7y agoIf you want to know, it's probably in the prospectus. I'd be shocked if termination called for anything other than liquidating the holdings of the trust and distributing the proceeds pro-rata to shareholders. Even if something weird was supposed to happen, there would be at least 20 years of notice for everyone to get their money out.
- astrange 7y agoSince it's an ETF, I'm pretty sure you can hand in your SPY shares to the trust and they'll give you the underlying S&P 500 companies' shares without even having to sell.
- nimish 7y agoOnly authorized participants can do that.
- webninja 7y agoETF shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, less wealthy investors must buy and sell ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may pay more than net asset value (NAV) when buying and receive less than net asset value when selling.
- BubRoss 7y agoWhy wouldn't they just send a fixed time? Why would anyone want to use random kids as their oracle?
- toast0 7y agoMost likely the relevant rule against perpetuities has a limit of X years or death of a named person + 20 years. And the X is known, but likely to be less than the longest life + 20 years.
- guan 7y agoThe traditional rule against perpetuities is the life of someone alive when the trust is created plus 21 years. That is also the rule in New York, in section 9-1.1 of the Estates, Powers and Trusts Law. SPY’s lawyers probably chose 20 years to be on the safe side.
- IloveHN84 7y agoFund terminates, bankers win
- __john 7y ago> SPY as we know it will cease to be on Jan. 22, 2118, or 20 years “after the death of the last survivor of the eleven persons” -- whichever occurs first. The structure doesn’t provide those people with a financial interest in SPY. If SPY ceased to exist what would be the effect on the markets?
- Overtonwindow 7y agoThis is really confusing, I wish Matt Levine would take it up. Could someone perhaps explain exactly what’s going on here? I get that they use the names of these children, but they didn’t say if there was more to it. If it’s just the names it could be anyone. How does it tie specifically to each child?
- perl4ever 7y agoHe did. It was in today's column. In describing what would happen if all of them died and the trust had to be shut down: "...money could move from SPY I to SPY II by passing a basket of S&P 500 stocks from SPY I to a bank trading desk, and from that trading desk to SPY II, without ever selling it in the market..." "...the assets of SPY I would pretty efficiently move over to SPY II, and the price of the underlying stocks would not be affected. Some retail investors wouldn’t want to move, because the move would trigger taxable gains for them, but over 20 years that problem would mostly go away as they cash out naturally. By 2039, the trust’s accelerated end date, SPY I would be pretty small and the real S&P 500 index ETF action would be in SPY II. No one would have to dump stock along the way, and the short-selling supervillain would never be rewarded for his evil deeds."
- wmf 7y agoI wonder if this is related to the rule against perpetuities; basically in some jurisdictions you can't have a trust that exists forever even though that doesn't really matter for an ETF. https://en.wikipedia.org/wiki/Rule_against_perpetuities https://en.wikipedia.org/wiki/Rule_against_perpetuities
- huac 7y agoyep, it is, new york is one of the states where that rule applies
- edoo 7y agoI'd be concerned that there was some tradeable pattern to the end of such a fund that may translate to an increased risk of death for the named parties.
- perl4ever 7y agoAccording to Matt Levine, the underlying stocks would not have to be bought and sold if the trust ended and a new one was created. So the trusts wouldn't incur taxes and it shouldn't affect the price of the stocks.
- ggg3 7y agothe biggest take away here is how little the intent of the laws matter for finance. I think it was daniel bell who wrote about how it always have been impossible for investors to have any real say on what executives of the companies they invest into do. this illustrate that even legislators have little say.
- stewgoldman 7y agoEleven ordinary twenty-somethings??? They're not ordinary at all. They are Spy Kids.
- webninja 7y agoI hate it when you submit a story and come to find that someone else already submitted it before you. /rant Of course it’s a good story.