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Governance

Instilling Nerves of Steel

August 11, 2008 - If you can't say anything nice about someone, don't say anything at all. When it comes to mutual funds' communications with investors about today's economic realities, the industry puts a positive spin on the market.

Companies Gear Up For XBRL Reporting

August 11, 2008 - The Securities and Exchange Commission could mandate the use of eXtensible Business Reporting Language (XBRL) in mutual fund risk return summaries by as early as the first quarter of next year, according to industry experts, putting many fund companies on the data-tagging fast track. XBRL US, the U.S. version of the international consortium, has joined forces with Andover, Mass.-based mutual fund data provider NewRiver to make sure public companies, mutual funds and credit rating agencies are ready in time.

SEC Helps Boards Get Over The Enigma of Trades

August 4, 2008 - The Securities and Exchange Commission issued guidance last week for fund boards of directors in assessing their firm’s soft-dollar practices. The SEC said it was issuing the guidance a full two years after the limitations it put on soft dollars in 2006, restricting it only to research, due to rapidly evolving market and trading practices. True enough, there are wide discrepancies among brokerages today, due to rapidly evolving markets, trading practices and electronic crossing networks. Fund companies have until Oct. 1 to comment on the SEC’s guidance. The Commission outlines numerous considerations for boards, which must rely on reports from top management, auditors, counsel and chief compliance officers in assessing day-to-day trading systems.

ICI Asks SEC to Expand Credit Rating Rules

August 4, 2008 - WASHINGTON — The Investment Company Institute last Monday urged the Securities and Exchange Commission to expand its proposed credit rating agency rules on structured products to include municipal securities, and to increase the secondary market disclosure requirements for the municipal market. The ICI said that the SEC’s proposed rules that would require credit rating agencies to disclose conflicts of interest highlight similar disclosure issues in the municipal market. In addition, the ICI said, the Commission’s proposal to take references to certain ratings out of its rules will put the onus of credit analysis more squarely on fund companies and other investors that will, in turn, need more up-to-date disclosures from municipal issuers.

SEC Prepares to Close the GAAP

August 4, 2008 - NEW YORK - A lot of people are wondering when the U.S. will adopt the same international standards for financial reporting that Europe and the rest of the world seem to be moving toward. The rule-based, Generally Accepted Accounting Principles (GAAP) have been around in the U.S. for years, but differ from the principle-based International Financial Reporting Standards (IFRS) that the European Union adopted in 2005. Currently more than 100 countries have moved to incorporate or are allowing IFRS, according to the global tax and advisory service firm Ernst & Young, in a presentation last week.

401(k) Plans Move to Collective Trusts

July 28, 2008 - BOSTON - Workers love pension plans, but providing 20 to 30 years of benefits to a huge retired workforce can cripple most companies' profits. As more firms drop their defined benefit pension plans in favor of defined contribution 401(k)s, institutions are looking for qualified default investment alternatives to mutual funds, such as collective investment trusts (CITs) and separately managed accounts (SMAs), to provide employees with pension-like features.

Fund Execs Defend 401(k) Fees

July 28, 2008 - BOSTON - Excessive fees in some 401(k) plans are hurting the reputation of all 401(k) plans and shaking investor confidence in what most financial experts agree is a great way for the majority of Americans to save for retirement. 'There is a notion in the press that 401(k) investors are being hosed. This is not the case,' said Michael Hadley, the Investment Company Institute's associate counsel for pension regulation, at the 'Defined Contribution Investment Only Forum,' held last Monday and Tuesday at the Harvard Club, and hosted by Financial Research Associates. '401(k) investors are getting an incredible deal.'

Regulators Aim to Stop Spread of Rumors

July 21, 2008 - Federal regulators are cracking down on the potential spread of false and misleading rumors that could potentially affect market conditions. While rumor mongering is not a widespread problem in the financial industry, a few high-profile cases-the SEC investigating 50 hedge funds last week for potentially spreading rumors on the fall of Bear Stearns and Lehman, and halting shorting Freddie Mac and Fannie Mae-have forced regulators to take a strong public stance against such actions. Then there were the arrests last month of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin for securities fraud and the April settlement of securities fraud and market manipulation charges by Paul Berliner, a former trader with the Schottenfeld Group.

Tax Warning to Hedge Funds Heading Overseas To Avoid Subprime Risks

July 14, 2008 - The ongoing credit crisis saga has taken a tremendous toll on hedge funds due to their exposure to structured mortgage-backed assets-and for those heading or parsing trades overseas to avoid U.S. taxes: Beware. The contracting demand for mortgage-backed securities-which had been dramatically overvalued by brokers who pushed more than 600 varieties of these assets to hedge fund managers through unregulated, highly leveraged repos-precipitated the tightening of unsecured term funding.

Money Market Funds Called Upon to Make Non-Public SEC Filings

July 14, 2008 - How serious are liquidity problems with money market mutual funds? Mercer Bullard, founder and president of Fund Democracy, believes they're serious enough to warrant an immediate rule requiring money market mutual funds to make non-public monthly electronic filings of their portfolios to the Securities and Exchange Commission. In fact, he's upset that so far, the only SEC reaction had been a secretary's acknowledgement of the receipt of his Jan. 16 rulemaking petition.

Samuel Israel III: The Great Hedge Fund Escape Artist

June 30, 2008 - 'I cheated my investors because I was afraid to admit my failure. I did not want the world to think I was not good enough and I did not want my family to see me as a failure.' Those are some of the choice, cowardly words from Samuel Israel III, the erstwhile Bayou Capital hedge fund manager who cheated investors out of $450 million, when begging the sentencing judge for leniency. Apparently, Israel believes he was justified in, and can earn sympathy for, ripping off his clients because he couldn't measure up to his prominent New Orleans family. His lawyer also pled on Israel's behalf, noting the swindler's pacemaker, back trouble and addiction to pain killers.

Hedge Fund Launches Fall to Eight-Year Low

June 30, 2008 - WASHINGTON - Volatile market conditions and the credit crisis have put the hard brakes on new hedge funds. The number of hedge funds launched in the first quarter was the lowest for a quarter since 2000, while fund liquidations increased from a year earlier. There were 247 hedge funds launched in the first quarter, down from 251 a year earlier, according to Chicago's Hedge Fund Research. One hundred seventy hedge funds were liquidated in the three months, 23.2% more than in last year's first quarter.

Hedge Funds Fear New SEC Regulations

June 30, 2008 - NEW YORK - The freewheeling days for hedge funds may be numbered. Depending on who gets elected to the White House in November, the next Securities and Exchange Commission may push to impose additional regulations on hedge funds that, many critics say, could strangle managers' ability to generate exceptional returns. Ironically, hedge fund experts say the best way for the industry to prepare for the new regulations may also be the best way to prevent the new regulations from happening.

Death Knell for Dominance In 401(k)s, Edelman Says

June 23, 2008 - The Supreme Court's recent decision in LaRue v DeWolff to permit workers in 401(k) plans to sue administrators for high fees will inevitably lead to lower fees-and the end of the retail mutual fund industry's dominance of the market. That's the strong opinion of widely quoted, and frequent financial TV guest Ric Edelman. This past February the Supreme Court ruled in favor of James LaRue, a worker suing the administrators of his 401(k) pension plan on breach of fiduciary duties, Edelman, a financial planner, notes. LaRue claimed that DeWolff, Boberg & Associates, Inc. ignored LaRue's instruction to change to more stable investments, eventually leading to depletion of his pension by approximately $150,000. The Supreme Court ruled that this was a breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA).

Hedge Funds Balance Secrecy, Transparency

June 23, 2008 - NEW YORK - Hedge funds are notorious for being secretive, private investment pools, but the time has finally come for them to become more transparent in order to capture the billions of dollars floating around alpha-seeking institutional investors' pockets. Here's the key question: Assume you are a qualified investor with at least $1 million in assets. How do you conduct due diligence to find out what you're buying?