Week in Review
March 5, 2007
American Century Acquires $225M of Kopp Assets
American Century Investments has acquired the mutual fund assets of Kopp Investment Advisors. Terms of the deal were not disclosed, but American Century has merged the small-cap Kopp Emerging Growth Fund into the American Century New Opportunities II Fund, and assets of the large-cap Kopp Total Quality Management Fund into the American Century Equity Growth Fund.
Together, the acquisitions represent $225 million in new assets for American Century. The boards of both companies unanimously approved the transaction.
American Century Senior Vice President of Business Development David Tucker said the acquisition will allow the New Opportunities II Fund to lower its shareholder fees. Because the Kopp Emerging Growth Fund has capital losses, the New Opportunities II Fund will also benefit from greater tax efficiency through the acquisition, he said.
Lee Kopp, founder and chief investment advisor for Kopp Investment Advisors, said that shedding the two retail funds will help his company focus on managing private accounts.
Bayou Investors Can Sue Those Who Bailed Out
A federal bankruptcy judge has ruled that investors in Bayou Management, a collapsed, fraudulent hedge fund, are able to sue investors who cashed out before the fund failed in 2005, according to The Wall Street Journal.
One trustee suing the hedge fund, Jeff Marwil, is attempting to recover $142 million from a range of investors who cashed out before the fund's closing. Sixteen million of the sum is profit and $126 million is the original money investors poured into Bayou.
The judge ruled that Marwil could try and get back the entire amount. As an alleged "fraudulent conveyance," the money was possibly given back to investors by the hedge fund manager in order to perpetuate the fraud, wrote Adlai Hardin, Jr., a judge in the U.S. Bankruptcy Court for the Southern District of New York. He denied defendants' motions to dismiss dozens of lawsuits brought by Marwil.
Marwil is suing the fund manager of hedge fund Sterling Stamos, as in early 2005, it withdrew tens of millions of dollars from Bayou, according to people close to the matter. Additionally, Marwil has sued family trusts, individuals and hedge funds-of-funds, and he intends to sue several more, as well. The suits contend that money was unfairly paid out as part of the scheme by the managers to defraud investors.
"I call it the Hotel California' syndrome for hedge funds," said Timothy Mungovan, an attorney at Nixon Peabody, who represents clients in five hedge fund failures in which redemptions by some investors are an issue. "You can check out anytime, but you can never leave."
The case is raising interest as investors often pull their money out of hedge funds when they see warning signs of danger. If investors have to pay back money after leaving a fund, it would increase the risks of investing in hedge funds.
Fund Firms Diversifying Lifecycle Fund Portfolios
Following a rash of acquisitions of asset management firms by fund companies, many are now populating their lifecycle funds with new offerings from their target acquisitions, The Wall Street Journal reports. Three such companies to do so include Legg Mason, Amvescap and Principal Financial.
Certainly, there is a need to differentiate these increasingly popular products, as more fund companies rush to bring them to market; last year alone, fund companies introduced an additional 50 lifecycle funds, bringing the total to about 200, according to Morningstar data.
At the end of January, for example, Amvescap's AIM Investments division introduced six lifecycle funds that invest in exchange-traded funds from its parent company's recent PowerShares acquisition.
Putnam Investments Taps Into Consumerism Abroad
While American consumers are accustomed to traveling by air and buying new cars, travel and leisure sectors have become a real growth area in many developing countries, and a trend Putnam Investments' Shigeki Makino and Bradford Greenleaf bet will continue, according to MarketWatch.
The co-managers of the Putnam Global Equity Fund have $2.1 billion, or roughly half of their portfolio, invested in U.S. companies, with the remainder abroad, mirroring the MSCI World Index. Only a small portion, 4%, is invested in emerging markets.
Lipper data shows the fund has gained 14.6% on average annually in the past three years, compared to 13.7% among its peers.
In the past 12 months, the portfolio's A shares are up 23.5%, compared to 20.6% average gains among its peers.
Makino likes Air France-KLM airlines, which has many routes between Europe and various emerging markets.
"Their planes are very full, and the outlook for supply and demand is positive," he said. "We like all airlines around the world, and Air France-KLM is one of the largest with a strong balance sheet, and the company is bringing down costs and is one of the cheapest on valuation," Makino said.