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Week In Review

SEC Votes 5:0 for New Target-Date Disclosures

The Securities and Exchange Commission voted 5:0 Wednesday to require target-date funds to do a better job of explaining the purpose of their retirement date, how their asset-allocation glidepaths change over time, and, in a new twist, to include easy-to-understand visuals in ads. "Many individual investors are understandably overwhelmed by multiple investment choices and increasingly complex investment products," said SEC Chairman Mary L. Schapiro.

The disclosures are designed to better illuminate target-date funds for investors, in light of target-date funds as the primary defaults for 401(k) plans-not to mention the market crash of 2008, which brought down one 2010 target-date fund, the Oppenheimer Transition 2010 Fund, by 41%.

"Target-date funds are designed for investors who do not routinely monitor market movements or realign personal investment allocations," Schapiro said. "However, the experience of 2008 revealed that target-date funds did not perform as many retail investors expected. While target-date funds' returns turned positive in 2009, the variability continued, with returns ranging from 7% to 31%."

SEC analysis has shown target-date fund equity performance, over the life of their investments, to date, to range from 20% to 65%. "Given the variability of returns of target-date funds in 2008-and again in 2009, it is clear that investors need more information than just the date in a fund's name-they need [to help investors] evaluate what the date means and what the fund's projected investment glidepath is," Schapiro said.

The new requirement to explain the purpose of the target-date is simply whether that year is the retirement goal or 20 to 30 years of living beyond that time. By requiring investment advisors to do a better job of explaining a fund's holding, asset allocation strategy and investment philosophy, the goal is to better meet an investor's conservative, moderate or aggressive expectations. As part of the new advertising rules, the SEC proposed antifraud guidance would outlaw statements about fund suitability. Cipperman & Co. says sponsors should always be wary about suitability statements in ads.

Institutional Investors Main Driver of Hedge Fund Cash

Institutional investors provide nearly three quarters of the total capital currently flowing into hedge fund managers1 investment vehicles, a new study claims.

Through a Preqin special report titled "Tapping Into Institutional Sources of Capital June 2010," the London-based research firm estimates that 72% of the cash-in-flow to hedge funds are derived from endowments, pension funds, fund of funds, endowments, foundations and family offices.

"After the fundraising difficulties of the last two years, 2010 has seen increased interest in hedge funds from the institutional market, with new investments being made and sought," the report said.

Of the 50 global investors surveyed last month, Preqin states that new investments "depends upon the amount of capital they have available as well as their investment horizons." In total, 56% said they make 10 or fewer investments with the remaining group making over 10 new commitments on an annual basis, the findings stated.

"The institutional sector of the hedge fund market has become more important in the wake of the market tumult, as such investors have stuck to the asset class in much greater numbers than the high-net-worth sector," Preqin explained.

Currently, the eight-year old alternative focused firm said that American pension plans rely on consultants for oversight in the industry, with European plans looking to direct marketing and Asian funds looking to third-parties. Assistance from such services is vital due to overwhelming amount of proposals that institutional investors field monthly.

Nearly 40% receive 15 to 29 proposals, depending on their size and reach.

Surge for Hybrid Annuities - With LTC Riders

Banks expect hybrid annuities with long-term-care riders to be the next hot product on brokerage platforms, as soon as product providers ramp up their offerings in this area, a Kehrer-Limra executive said.

The 15 banks at the firm's Annuity Product Management Roundtable in Chapel Hill, N.C., late last month ranged from the very largest to community banks. Kehrer-Limra polled them throughout the event on what was working, what wasn't and where they saw opportunities for growth.

Fifty-seven percent of bankers said that out of a choice of seven annuity types, hybrid annuities with a long-term-care component are the most likely to take off in terms of sales.

"Banks think these combo products best meet their customers' evolving needs," said Scott Stathis, Kehrer-Limra's chief operating officer and managing director.

Providers at the meeting said they recognize the opportunity but that there is a lot of risk involved from an underwriter's perspective.

"They all said they had products in the works, but no one wants to dive in first," Stathis said.

"There have been combo products for a long time, but now tax changes have put them on the radar, so everyone's looking at them," he said. "The problem with the first ones is that more people used them than they thought."