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May 3, 2010

 Past Issues

Mutual Funds

Why REITs Could Lead Mortgage-Backed Comeback

As the private-label mortgage bond market comes back to life, real estate investment trusts may play the lucrative central role that belonged to banks and Wall Street firms during securitization's pre-crisis heyday. Consider the watershed deal late last month from Redwood Trust. Citigroup was everywhere to be found on the assembly line-except the middle. At one end, Citi's mortgage unit originated the $238 million of loans and services them. At the other, Citi's investment bank underwrote the bonds. But Redwood, a Mill Valley, Calif., REIT, put its balance sheet on the line.

Week in Review

Treasury Offers Interim Tax-Credit Bond Guidance, IRI Gives Treasury, Labor RFI on Lifetime Income, FINRA CEO Urges Firms To Be More Responsible, 70% Say They Doubt They'll Retire, and Krawcheck Says Retirement Must Be Redefined.

Muni Mutuals Drying Up as Risk/Yield Appetite Rebounds

Wherever the money's going, it's not going to municipal bond mutual funds. Even as cash continues to flood various other mutual fund sectors at a robust pace, the trend of cash flowing into the municipal fund industry remains on a clear downward trajectory. Heartier risk appetites and strengthening hunger for yield appear to be driving more money into riskier assets, such as stocks and emerging market debt. Municipal funds reported $118.4 million in new money from investors in the week ended April 17, according to Lipper FMI-very light by recent standards.

401(k)s

Looking Into the 401(k) Future

The 30th anniversary of the first 401(k) savings plan which I designed is rapidly approaching on Jan. 1, 2011, making this an appropriate time to briefly consider how 401(k) has impacted our retirement system.

Most Fortune 500 companies offered their employees a defined benefit plan, plus a thrift/savings plan, when 401(k) savings plans began in 1981. The thrift plans featured after-tax employee contributions, plus matching employer contributions. The most common retirement plan available to employees of small to mid-size companies was an employer-funded profit sharing plan.

Regulation & Compliance

Raising the Bar: Three Steps to Improving Retirement Security

The more things change, the more they remain the same. In the early 1980s, the nation faced a serious retirement challenge, with Social Security estimated to have unfunded liabilities of about $6 trillion and worries about whether the Greatest Generation would be able to afford its retirement. Flash-forward almost 30 years. Today's headlines talk about a $5 trillion shortfall in Social Security and concerns about how the Baby Boomers will be able to pay for their retirement.

Ops & Tech

Growth Trajectory: The Increasing Popularity of the Manager-of-Managers Investment Model

It's an unmistakable market reality: asset managers have recognized they can no longer be all things to all people. They have come to the realization that they cannot always develop every aspect of the ever-broadening range of increasingly complex portfolio products that their clients demand. As a result, more and more are leveraging their internal capabilities in conjunction with external niche-market expertise by implementing a manager-of-managers (MoM) investment model.

New Derivatives Regs Threaten Operational Labyrinth

Over-the-counter derivatives, once known for their obscurity, are center stage in the Securities and Exchange Commission's lawsuit against Goldman Sachs and President Obama's financial reforms. When values went south in 2007 and 2008, an inability to properly judge and react to the risks contributed to the bankruptcy of Lehman Brothers and the near-failure of AIG. Operations executives heading to the Securities Industry and Financial Markets Association's 2010 conference in Palm Desert, Calif., this week agree regulation is imminent.

Fund Valuations Can Be a Moving Target

One of the most challenging aspects of the credit crisis is the need to revise historical processes to validate security prices. A common industry practice is for administrators to test the propriety of prices by performing vendor comparisons and examining variations outside of typical percentage thresholds. However, where substantial variation in valuations among pricing vendors for fixed income securities exists, particularly those with low trading volumes, it is virtually impossible to complete vendor price comparisons using historical tolerances.

The Next Generation of Communication is Already Here

If you're reading this on your cell phone, congratulations. You are one of the 33% of Americans using a cell phone or smart phone to access the Internet. If you are reading this using an e-reader device, yours is one of the 2.5 million devices sold in 2010-more than twice the number of units sold in 2009. If you're using a smart phone with a touch screen, you are one of the 23.8 million subscribers today -- a 159% increase over 2009. If you're reading this online, you are already among the majority of Americans demanding electronic choices for how they receive information and do business.

International

Global Balance Key to Regulatory Restructuring

NEW YORK -- In the aftermath of the global recession, regulators from developed nations are working with financial industry leaders to build a new foundation for a more balanced global economy less susceptible to worldwide crises. To help achieve this balance, individual countries must first adopt international reporting standards, control their own debt-to-gross domestic product ratios, and work together to identify and address imbalances as they crop up.

Hedge Fund Investors Look to Liquidity, Flexibility of Emerging Markets

Predicting a positive but shaky year ahead, alternative investors are looking abroad to reap the benefits of the global recovery. Nearly half of the 1,300 alternative investors surveyed by Brighton House Associates in the fourth quarter said they were interested in hedge funds following global macro trends because of the strategy's broad economic approach and highly liquid structure. Interest in emerging markets by U.S. investors has burgeoned over the past two years, as economies in these markets fared far better than the badly damaged American economy. As American credit froze to a near halt, banks in China, India and Brazil, for instance, continued to lend freely, with some of these countries even posting double-digit GDP growth as the U.S. contracted for four consecutive quarters.

Performance

Fuss: Interest Rate Policy Will Shape Recovery

BOSTON -- Longtime industry veteran Dan Fuss, the 76-year-old vice chairman and managing director of Loomis, Sayles & Co., knows that the Federal Reserve has to raise interest rates eventually. This could dramatically affect credit spreads, yield curves and other macroeconomic issues. But until such a move takes place, there is no need to get excited.

With the advantage of more than 52 years of experience in the financial industry, Fuss sees many similarities to previous recoveries and believes a careful, measured approach can position his firm and shareholders for long-term success. Money Management Executive Senior Editor John Morgan recently sat down with Fuss in his office in downtown Boston to talk about how Loomis Sayles' global outlook and how his firm is preparing for the inevitable shift in interest rates.

Editor's Desk

Milestones

In 2011, 401(k) plans will turn 30, but the milestones the mutual fund industry has reached in this time are but a nanosecond in the history of U.S. retirement policy. Executives we interviewed for this special edition of Money Management Executive for the Investment Company Institute's meeting in Washington, speak to important milestones of the recent past and into the future. Look inside for observations and forecasts by Ted Benna, Robert L. Reynolds, Dan Fuss, David C. John, Steven Miyao and others.

Executive Moves

Executive Moves

Fidelity Taps Henderson as Clearing Canada CEO, DTCC Elects Five Trustees, and Kline Joins Deutsche Bank To Head Hedge Fund Unit.