Week in Review
December 17, 2007
Schwab Successfully Unwinding SIVs: Analysts
Charles Schwab is successfully selling off $8 billion in potentially risky structured investment vehicles (SIVs) that it held in six money market funds, according to a research report from Sanford C. Bernstein. Thus, Bernstein doesn't believe the funds will suffer any adverse effects from the subprime crisis.
Currently, Schwab's money market funds hold about 4% of their assets in SIVs, down from $115 billion, or 7%, at the end of September. And even though Schwab is rapidly selling these holdings, that should not cause investor panic or its remaining SIV holdings to fall drastically in value, Bernstein added. By the end of the year, SIV holdings in Schwab money market funds should be only 3.5%, and by the end of February, only 2%, according to Bernstein's projections, based on the SIVs' maturity dates.
"Like other large mutual fund complexes, Schwab is unlikely to ever allow its funds to drop below a dollar and would, if necessary, step in to buy the SIV commercial paper at par," said Bernstein Analyst Brad Hintz.
BoA Shuts $12B Money Fund to New Investors
Bank of America has shut the Columbia Strategic Cash Portfolio, a fund for institutional investors, to new investors due to massive losses in the past few months that were spurred by asset-backed securities, depleting its holdings to $12 billion, down from $20 billion.
BoA spokesman Jon Goldstein told the Associated Press that some of the asset-backed securities were in subprime mortgage holdings, but noted that the instruments have affected asset management firms around the globe. "The conditions have really weakened the performance across the industry, including this one," he said.
The Strategic Cash fund attempted to maintain a $1-per-share net asset value, but its prospectus didn't guarantee investors that it would, Goldstein said.
Brennan Keeps Egalitarian Traditions at Vanguard
Continuing the steady, egalitarian approach to running Vanguard that founder Jack Bogle began, current CEO Jack Brennan has kept the firm's open-door policy and attempts to keep executives with the firm for a long time by rotating them frequently to make their jobs more intriguing and by promoting from within, The Financial Times reports.
That also means that there is no executive dining room and even the top executives, Brennan included, answer phones at the call center when volume gets heavy.
And when new employees join the company, even if they're fresh out of college, Brennan tells them: "We hope this is your last job."
The approach seems to be working. The turnover at Vanguard over the past 30 years has averaged less than 7% a year, one of the lowest rates for any company in the U.S. And because Vanguard is mutually owned by its investors and run at cost, it charges some of the very lowest fees of any asset management firm, another key reason for its success.
Perhaps more impressively, Vanguard is the top-selling mutual fund company through October of this year, taking in $64 billion, bringing its total assets under management to more than $1.3 trillion.
As to Brennan's individual style, he says he prides himself on hard work and long hours, reporting to duty every morning at 6 a.m. for 13- or 14-hour days. Discipline, teamwork and a straightforward approach also figure among his priorities.
"We're a no distractions' place," Brennan said. "There's not a lot of golf that goes on at Vanguard. If you're here, you're here long hours."
And as to the practice of moving people around to very different jobs, Brennan explains: "Our former head of IT now runs our retail business. The man who runs marketing used to be our external institutional [sales]person. The man who ran Europe just came back to head internal audit. We want to round people out so they can be as effective as they can."
Brennan also said there are many advantages to remaining a privately held firm, least not of which is being able to "think about our business in a very long-term way. One quarter, one month or one year of cash-flow data doesn't mean that much to us. We've never had a growth objective. Our objective is fund performance and the quality of what we do."
Hedge Fund Boom Causing Back-Office Shortages
Nearly 70% of hedge funds are having a difficult time retaining back-office personnel, and 60% don't have enough staff, according to a survey of more than 500 chief financial officers at hedge funds with $100 million or more in assets under management, by accounting firm Rothstein Kass.
Howard Altman, co-managing principal of Rothstein Kass, said: "Firms of all sizes are struggling to retain qualified personnel, including CFOs and COOs. These problems will only be exacerbated by the industry's increasing institutional focus."
"It was clear to us from our daily interactions with clients that back-office staffing concerns are pervasive," added Todd Noah, principal in charge of Rothstein Kass Executive Search Group.