12b-1 Intertia Among Fund Predictions for 2008
January 4, 2008
Seeing how the biggest story of 2007 was the subprime crisis, which only a few canny hedge fund managers foresaw, let's take a look ahead to potential news headlines for 2008. Who knows, we might even be as canny as the best of them.
12b-1 and One for All. Securities and Exchange Commission Chairman Christopher Cox failed on his promise to revisit these 30-year-old-plus, archaic, controversial fees by the end of last year. He had indicated that he was considering banning their use to pay brokers rather than their original purpose: to market funds, build up their assets and pass along economies of scale.
Now there are rumblings that the SEC will, instead, set guidelines for independent directors to review the fees. If that happens, the status quo on 12b-1 fees will, essentially, remain intact. After all, as some industry insiders have said, even if the SEC should ban 12b-1 fees, fund companies will simply find another way to levy fees on investors to help pay distribution costs.
Independent Chairmen a Floperoo. The SEC has dropped the issue of requiring fund company boards to be run by independent chairmen. Although the SEC was twice defeated by a lawsuit brought by the U.S. Chamber of Commerce to impose the requirement, Cox had vowed to revisit the matter before the end of 2007. Here again, he failed, and the matter is very unlikely to even be raised again this year.
Beijing 2008-and Bust. The long-anticipated bursting of the market bubble in China is likely to be delayed by the world's excitement over the summer Olympics in Beijing. But once the event is over, the danger of China's market plummeting will again appear, and will likely happen before the end of the year.
Troopergate Paper Trail. The investigation into New York Governor Eliot Spitzer's role in directing his henchmen to dig up dirt on New York Senate Majority Leader Joe Bruno will continue, and Spitzer will be forced to testify whether he gave the order. Whatever happened to the e-mails and instant messages that disappeared?
ETF Hoopla. The groundless fervor over exchange-traded funds will come to a halt with the closure of many of these funds and a final end to the flood of new entrants. Yes, there will once again be talk of an actively managed ETF, but it won't happen.
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