Week In Review
November 24, 2008
EU to Propose Hedge Fund, Private Equity Regs
The European Union, which has not been in favor of new rules and capital requirements for hedge funds and private equity, will propose such regulations next month to the European Commission. Earlier, the EU said that no regulation was needed, possibly in light of the industry's call for best practices and self-regulation. Recently, however, Charlie McCreevy, the commissioner of internal markets at the EU, has been under pressure to reverse that decision.
At the G20 meeting on financial services this month, politicians agreed that at the least, hedge funds and private equity firms should draft best practices.
Gov't Seeks Firmer Rules For Complex Instruments
The President's Working Group on Financial Markets is looking at ways to better understand and regulate derivatives and credit default swaps, which essentially are insurance on corporate debt.
One idea is to create a central clearinghouse for credit default swaps and have the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission share information on them, including prices and trading volume. The goal is to "increase market transparency to monitor market trends, identify potential issues and prevent market manipulation and insider trading."
Department of the Treasury Secretary Henry Paulson heads up the President's Working Group on Financial Markets, with other members including Fed Chairman Ben Bernanke and SEC Chairman Christopher Cox.
Cox said: "The virtually unregulated over-the-counter market in credit default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of AIG. The SEC has regulatory and supervisory authorities over the clearing agencies that may be established for credit default swaps, and we will use those authorities to strengthen the market infrastructure and to protect investors."
1,700 Lose Jobs at Fidelity In Second Layoff Wave
Upon laying off 1,300 people in the second week of November, Fidelity Invesetments indicated that another 1,700 will lose their jobs in the first quarter of 2009, bringing the tally of layoffs to 3,000, or 7% of the workforce.
Whereas mostly support personnel along with a few managers were cut in the first round, the upcoming second layoff round could count research and investment management personnel among the casualties, Fidelity indicated.
BlackRock Cutting Jobs
BlackRock will be eliminating a number of positions among its 5,500 ranks, the first time in its 20 years of existence that it has eliminated jobs. BlackRock spokeswoman Bobbie Collins told Bloomberg the firm would not disclose the cuts until early 2009
Echoing sentiments expressed by other companies making cuts, Collins said: "Times like these require fiscal discipline. We expect it of the companies in which we invest, and we must expect it of ourselves."
In an internal memo, BlackRock told employees: "A wide variety of businesses across industries and regions have reported weak third-quarter results and even weaker expectations for fourth-quarter 2008 and for 2009. BlackRock is not immune."
The firm's third-quarter earnings fell 15%, the first quarterly decline in two years, and assets fell 12% to $1.26 trillion.
On the bright side, however, BlackRock CEO Laurence Fink recently said he believes the market is reaching a capitulation and should rebound by the middle of next year.
So far this year, the Standard & Poor's 500 Index is down 42%, financial firms have posted $966 billion in credit-related losses, and 166,000 jobs have been cut at banks and brokerage firms.
Equity Funds Lose $31.8B In Week Ended Nov. 12
As the Dow Jones Industrial Average hit a 5-1/2-year low, equity mutual funds lost $31.8 billion in the week ended Nov. 12, according to data from Trim Tabs Investment Research.
With the exception of the second week in November, equity mutual funds have lost assets every single week since July 23.
Global equity funds lost $10.5 billion of assets, up markedly from the $140 million withdrawn in the prior week. Bond funds also suffered net redemptions, of $6.3 billion, and hybrid funds lost $2.2 billion.
Although financial experts continue to tell investors to stay the course, and not to lock in losses, a growing number of investors feel they cannot stomach losses any more, one analyst said. "The fear gets to them that it will go down even more. The pain gets to them. They say they want out," Donald Selkin, chief market strategist with National Securities, told CNNMoney.com.
"People are fearful of the future and possibly of unemployment," agreed Douglas Roberts, chief investment strategist at ChannelCapitalResearch.com. "They are squirreling away a reserve fund of cash. It is going to be a long while before you see major inflows" back into mutual funds.
Money Funds Reap $21.2B To Reach Total of $3.6B
Assets in U.S. money market mutual funds rose by $21.28 billion in the week ended Nov. 12, for a total of $3.637 trillion, the Investment Company Institute said.
Whereas assets in retail money market funds fell by $3.71 billion to $1.264 trillion, institutional money market fund assets rose by $24.98 billion to $2.373 trillion.