DEFA14A: Tortoise Capital Advisors to Merge Three Closed-End Funds into Actively Managed ETF

Tortoise Capital Advisors plans to merge three closed-end funds (TPZ, TTP, NDP) into a new actively managed ETF, Tortoise Power and Energy Infrastructure ETF, aiming to provide greater liquidity at net asset value.

Summary

• Tortoise Capital Advisors is planning to merge three of its closed-end funds into a newly formed actively managed ETF.
• The ETF will be named Tortoise Power and Energy Infrastructure ETF.
• The merging funds are Tortoise Power and Energy Infrastructure Fund, Inc. (NYSE: TPZ), Tortoise Pipeline & Energy Fund, Inc. (NYSE: TTP), and Tortoise Energy Independence Fund, Inc. (NYSE: NDP), with TPZ as the surviving strategy.
• The ETF is expected to maintain a similar investment strategy to TPZ, focusing on fixed income and dividend-paying equity securities of power and energy infrastructure companies.
• The combined assets of the three funds, including leverage, totaled $313.3 million as of July 31, 2024.
• The management fee for the ETF is expected to be 85 basis points.
• The transactions are expected to close in the fourth quarter, pending shareholder and regulatory approvals.
• The mergers are intended to qualify as tax-free reorganizations.
• Tortoise Capital recently announced a strategic restructuring to focus on traditional energy and power infrastructure investing.
• Tortoise Capital Advisors manages approximately $8 billion in assets as of July 31, 2024.

Sentiment

Score: 7

Explanation: The announcement is generally positive, focusing on increased liquidity and shareholder value. However, it is tempered by the need for approvals and potential market risks.

Positives

• The merger aims to provide shareholders with greater liquidity without a potential discount to net asset value.
• The ETF will be actively managed, potentially leading to better performance.
• The mergers are intended to qualify as tax-free reorganizations, minimizing tax implications for shareholders.
• Tortoise Capital Advisors has a solid record of investment experience and research dating back more than 20 years.
• The company is focusing on traditional energy and power infrastructure investing.

Negatives

• The transactions are subject to shareholder and regulatory approvals, which may not be obtained.
• There is no assurance when or whether such approvals, or any other approvals required for the transactions, will be obtained.
• The ETF's performance is subject to market conditions and investment risks.

Risks

• The ability to obtain requisite shareholder approvals or to satisfy other conditions for the proposed mergers is uncertain.
• Changes in market conditions could impact the success of the ETF.
• Changes in applicable legal, regulatory, or tax considerations could affect the mergers.
• Other risks and uncertainties could impact the actual future events.

Future Outlook

Tortoise Capital expects the transactions will close in the fourth quarter, subject to requisite fund shareholder approvals, satisfaction of applicable regulatory requirements and approvals, and customary closing conditions.

Management Comments

• 'We believe these actions are in the best interest of fund shareholders, providing them greater liquidity without a potential discount to net asset value,' said Tom Florence, CEO of Tortoise Capital.
• 'Actively managed ETFs will play an ever-growing role in fund investing and we will continue to evaluate the structure for our other products.'

Industry Context

The move reflects a broader trend of asset managers exploring different fund structures, including actively managed ETFs, to attract investors and provide greater liquidity. The focus on energy and power infrastructure aligns with ongoing interest in these sectors.

Comparison to Industry Standards

• Many asset managers, such as BlackRock and Vanguard, offer actively managed ETFs across various sectors.
• The 85 basis points management fee is competitive with other actively managed ETFs in the energy infrastructure space.
• Similar mergers of closed-end funds into ETFs have been undertaken by other firms to improve liquidity and reduce discounts to NAV.

Stakeholder Impact

• Shareholders of TPZ, TTP, and NDP will receive shares in the new ETF.
• The merger aims to provide greater liquidity and potentially better returns for shareholders.
• Tortoise Capital Advisors will continue to manage the ETF, maintaining continuity for investors.

Next Steps

• TPZ, TTP, and NDP and the newly created ETF anticipate filing proxy materials and registration statement materials in the coming weeks.
• Shareholder votes will be conducted to approve the mergers.
• Regulatory approvals will be sought.
• The transactions are expected to close in the fourth quarter.

Key Dates

Keywords

ETF, closed-end funds, merger, Tortoise Capital Advisors, energy infrastructure, TPZ, TTP, NDP, liquidity, net asset value