Week In Review
January 26, 2009
Fidelity, Franklin, Legg Mason Suffer Largest Redemptions in 2008
Fidelity Investments, Franklin Resources and Legg Mason were hit with the biggest redemptions in 2008, losing $40 billion, $21.5 billion and $21 billion, respectively. Collectively, the three companies suffered 43% of the $194 billion in total withdrawal requests during the year.
In all of 2008, U.S. and international stock funds lost $189.2 billion in assets due to withdrawals, and diversified funds had $29.7 billion in withdrawals. But bond funds took in a net $20.7 billion, and alternative funds, $4.1 billion.
The picture doesn't appear to be that much brighter for 2009. "We expect flows into retail equity products to remain challenging into 2009," said Robert Lee, an analyst with Keefe, Bruyette & Woods. While the outlook for equity funds isn't bright, Lee said, fixed income funds might continue to attract assets, however.
With fewer assets on hand, fund company fees have declined, and the industry has already shed an estimated 4,800 jobs.
Hedge Funds Lose 20% Of Assets to Redemptions
Investors withdrew $399 billion from hedge funds, or about 20% of assets, in 2008, according to data from Hennessee Group. On top of an average 18.3% market decline, or $382 billion in investment losses, the total $781 billion hit that hedge funds took was severe.
At the start of the year, the hedge fund industry had an estimated $2 trillion in assets. That is now depleted to $1.2 trillion.
Charles Gradante, co-founder of Hennessee, told Dow Jones that the redemptions would probably have been worse, had not so many hedge funds frozen redemptions. That being the case, investors are likely to increase the number of lawsuits against hedge funds this year.
Most Executives Foresee Recession Through 2011
In an online survey of 1,445 finance executives, Deloitte found that 58.4% expect the recession could last until 2011. Yet two-thirds are not in support of any additional bailouts beyond what has been done to prop up the finance and automotive industries.
But Deloitte Chief Economist Carl Steidtmann thinks the survey respondents are too pessimistic, given the extraordinary actions the government has taken. "Given the dollar amount of stimulus funds currently being pumped into the banking system," Steidtmann said, "we are more likely to experience a faster recovery than the survey results suggest. [It] could come as soon as late 2009."
Investor Confidence Index Rises 12 Percentage Points
State Street Global Markets' Global Investor Confidence Index rose from 48.2 to 60.3 in January.
Regionally, the increase was the strongest in North America, where the figure climbed 21 percentage points from 30.6 to 51.8. The increase was nearly seven percentage points in Europe, where the figure went from 66.3 to 73. It remained largely stagnant in Asia, falling minimally from 86.6 to 86.3.
Based on the buying and selling patterns of institutional investors, the index is based on their equity risk appetite.
"The move up in Global Investor Confidence this month is the largest we have seen since August 2007," said Harvard University Professor Ken Frott, who developed the index with State Street. "This is perhaps not surprising, with the index having registered a record low in December. [However,] it remains to be seen whether these reallocations represent changes in long-term convictions about the value of those assets.
"It may be true that institutional investors perceive that the risk of systemic collapse has abated somewhat in the wake of recent policy actions," Frott continued.
401(k) Assets Shift To Stable-Value Funds
A small, but growing number of 401(k) investors, burned by steep negative returns in 2008, are moving assets into such capital preservation funds as stable-value and money market funds, Mercer Consulting reported.
Assets in such funds grew 70% in 2008, evidently moving directly out of equity mutual funds, whose assets in 401(k) plans shrank by 70%.
"Overall, we believe that plan sponsors should be heartened by the fact that most of their participants are treating their 401(k) accounts as long-term investments and staying the course," said Eric Levy, retirement business leader at Mercer. "It is certainly understandable why some participants would move to some capital preservation funds, given the recent economic upheaval. In all likelihood, this will continue until the macroeconomic outlook improves."
On top of this, an increasing number of investors are seeking withdrawals from their 401(k)s in the form of either hardship withdrawals or loans. Such withdrawals rose 59% in November and December. In addition, since July, the number of people who have dialed back their contribution rates to zero has also increased.
That said, the number of people taking these drastic measures is still small, Mercer noted, without releasing the absolute figures. Mercer based its report on the actions of the 1.2 million participants in the 401(k) plans it administers.
Gross Believes Banks Are Largely Out of the Woods
Banks may have seen the worst of the financial crisis, but the economy will slog through more difficult times. That was the assessment that PIMCO Manager Bill Gross recently gave to Reuters.