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Beantown Mutual Fund Vets Eye Hedge Rollout
by Christopher Glynn, Reporter March 12, 2009
Boston is a mutual fund bastion. Still, the lure of the hedge fund business is hard to resist.
Vernon Square Capital, set to open in the spring, is staffed with personnel culled from Goldman Sachs and Putnam Investments. Cofounder Robert Earl admitted starting a hedge fund is a departure given his background, a career steeped in the Beantown mutual fund scene.
"It is different, from a business aspect and from an investment aspect," Earl said.
Earl, chief operating officer of Vernon Square, will run the business. After leaving Goldman Sachs, he opened the Boston branch of Barclays Capital. Geoffrey Kelley and Richard Weed, both who worked for mutual fund giant Putnam Investments, will handle portfolio management. Earl said their collective experience has helped in setting up Vernon Square.
NOTE: goldman sachs he is the operating officer of vernon squar, after he leaving golman he opened the boston branch of braclay capital.
"We have a good Rolodex," Earl noted.
While Boston, as a mutual fund center, can boast its share of investment talent, success in the hedge fund industry has been elusive.
In February, junk bond trader David Glancy closed down Andover Capital and took a job with Putnam. He had left Fidelity Investments, a Beantown institution, in 2003 for the hedge fund business, but never broke big. David Felman, who made a name for himself as a mid-cap guru at Fidelity, liquidated a hedge fund he started in 2004.
NOTE: he left the investment in as boston institution.
Earl called moving from the mutual fund field into the hedge fund business "a challenge." He said Vernon Square will run a quantitative market neutral strategy Weed developed.
"Our portfolio is going to be 100-to-150 long and 200-to-250 short," Earl said. "We are not just market neutral, but also cash and industry neutral."
Earl said volatility has produced "wide dispersion" in the market, making it a good time for the strategy.
Vernon Capital is hoping to launch with up to $25 million. The hedge fund has a 1.5% management fee and a 20% performance fee. Earl said the minimum investment for the fund is $500,000.
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WORK DAYS GET LONGER AT FUND FIRM
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Work days to get longer at fund firm
By Thomas Grillo
Friday, March 13, 2009 - Updated 21h ago
EmailE-mail PrintablePrintable Comments(1) Comments LargerSmallerText size ShareShare Rate(0) Rate
Putnam Investments' workers will be spending a little more time at the office starting this spring.
The mutual fund giant is increasing its workweek by two-and-a-half hours to a 37.5 hour week, effective May 4.
A company spokeswoman said the change will "maximize staff resources and align the firm with the standard hours in place within most financial services organizations."
Rusty Vanneman, research director for E-Trade Capital Management, said he was surprised. "I'm sure there's no increase in pay, but Putnam gets more productivity out of its employees to enhance profit margins."
NOTE: Rusty vanneman he's a the director of e-trade capital management and he was a good person forevery body.
With its assets plunging in the market meltdown, Putnam recently laid off more than 250 workers, including about a dozen portfolio managers and some analysts.
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Work days to get longer at fund firm
By Thomas Grillo
Friday, March 13, 2009 - Updated 21h ago
EmailE-mail PrintablePrintable Comments(1) Comments LargerSmallerText size ShareShare Rate(0) Rate
Putnam Investments' workers will be spending a little more time at the office starting this spring.
The mutual fund giant is increasing its workweek by two-and-a-half hours to a 37.5 hour week, effective May 4.
A company spokeswoman said the change will "maximize staff resources and align the firm with the standard hours in place within most financial services organizations."
Rusty Vanneman, research director for E-Trade Capital Management, said he was surprised. "I'm sure there's no increase in pay, but Putnam gets more productivity out of its employees to enhance profit margins."
NOTE: Rusty vanneman he's a the director of e-trade capital management and he was a good person forevery body.
With its assets plunging in the market meltdown, Putnam recently laid off more than 250 workers, including about a dozen portfolio managers and some analysts.
Comments(1) Comments | Post / Read Comments
Next Article in Business & Markets:
Thain: BofA was highly involved in bonus decisions
Advertisement
Related Articles
Putnam CEO puts positive spin on economy
Putnam CEO puts positive spin on economy
By Thomas Grillo
While trillions of dollars in wealth has been lost amid a global economic crisis,...
Putnam CEO puts positive spin on economy
Putnam CEO puts positive spin on economy
By Thomas Grillo
While trillions of dollars in wealth has been lost amid a global economic crisis,...
More on:
+ Putnam Investments + E-Trade Capital Management + Rusty Vanneman
Top articles in Business
1.
Bank of America chief defends bailout, sports sponsorships
2.
Will Don Imus ask Jay Severin?
3.
Bank of America CEO warns of takeover troubles
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5.
Health costs stable
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Contact us | Print advertising | Online advertising | Herald history | News tips | Electronic edition | Browser upgrade | Home delivery | Herald wireless
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No portion of BostonHerald.com or its content may be reproduced without the owner's written permission. Privacy Commitment
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biz1158249_2009-03-12 22:57:12__1_0_0
BERNANKE PROPOSES LESS RESTRICTIVE MONEY RULES (CORRECT)
STOCKSRATES & BONDSCURRENCIESMUTUAL FUNDSETFsCOMMODITIESECONOMIC CALENDAR
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Bernanke Proposes Less Restrictive Money-Fund Rules (Correct)
Share | Email | Print | A A A
By Christopher Condon
(Corrects spelling of Morrison in last paragraph.)
March 11 (Bloomberg) -- U.S. Federal Reserve Chairman Ben S. Bernanke said more regulation may be needed for money-market mutual funds, though he didn't endorse rules backed by former Fed chief Paul Volcker that would treat the industry more like banks.
Lawmakers and regulators should consider added restrictions on assets that money funds can own and a new "limited system of insurance" to protect investors, Bernanke said yesterday in a speech urging broad changes to U.S. financial oversight.
The comments signal Bernanke favors less aggressive rules for money funds than those recommended by a group including Volcker, an adviser to President Barack Obama. The group proposes regulating money-market funds more like banks, with reserve requirements and mandatory federal insurance.
NOTE:the commended signals benanke he favors less agressives rulefor money funs.
"He's being more measured in his remarks," Joan Swirsky, an attorney at Philadelphia law firm Stradley Ronon Stevens & Young LLP and a money-market fund legal specialist, said of Bernanke. "He's not throwing out the baby with the bathwater."
The proposals backed by the Volcker group "would eliminate money funds as we know them," Paul Schott Stevens, president of funds trade group the Investment Company Institute, said after they were disclosed in January.
Money-market mutual funds have drawn scrutiny since the collapse of the $62.5 billion Reserve Primary Fund in September. The New York-based money fund was the first in 14 years to break the buck, or drop below $1 a share. Its collapse, caused by losses on debt issued by bankrupt Lehman Brothers Holdings Inc., rattled confidence in the money funds, long considered the safest investments after bank accounts and Treasury debt.
Run on Funds
The incident sparked an industrywide run on money funds that can invest in corporate debt, known as prime funds. The retreat temporarily crippled the market for commercial paper as prime funds reduced holdings of the highest-rated debt by $200.3 billion, or 29 percent, in the final two weeks of September.
That helped drive the cost of issuing commercial paper to its highest level in eight months, squeezing companies, banks and public institutions that rely on the market to raise cash for expenses such as payroll. Combined with a pullback in bank lending, the commercial-paper freeze threatened to choke the economy.
The turmoil prompted regulatory proposals from the Group of Thirty, an independent policy organization whose members include Volcker, Treasury Secretary Timothy Geithner and Lawrence Summers, head of the White House's National Economic Council. In January, the group recommended that money funds either accept banking-industry controls or give up accounting rules that allow them to maintain a stable $1-a-share net asset value, or NAV.
Favoring Banks
Stevens, of the Washington-based Investment Company Institute, at the time called the Group of Thirty proposals "extraordinarily far-reaching recommendations that were made without any thought."
Volcker "wanted to kill money-market funds in favor of the banking sector" when he was chairman of the Fed from 1979 to 1987, Steven said.
ICI spokesman Gregory Ahern yesterday welcomed Bernanke's remarks without commenting on the specific proposals.
"We agree with Chairman Bernanke that money-market funds play a crucial role in the U.S. economy and appreciate his comments on the need to increase the resiliency of the money markets, generally, and money-market funds, in particular," he said.
NOTE:
The ICI in November formed a panel headed by Vanguard Group Inc. Chairman John J. Brennan to develop recommendations to improve the money-market fund industry. It is due to deliver its report by the end of March.
Assets in money-market funds have climbed to $3.83 trillion since falling to $3.33 trillion in the week following the freeze- up of Reserve Primary.
Two Approaches
Bernanke, in his speech to the Council on Foreign Relations, outlined two approaches to making money-market funds more stable. The first would place tighter restrictions on what funds could buy, "potentially requiring shorter maturities and increased liquidity."
Under rule 2a-7 of the Investment Company Act of 1940, money funds are required to invest only in highly rated debt that matures in less than 13 months.
Bernanke's remarks suggest the maturity limits could be shortened or "laddered," Swirsky said. That might require different percentage levels of a fund's portfolio to fall under staggered maturity caps.
Rule 2a-7 doesn't contain restrictions linked to the liquidity of investments other than to cap "illiquid securities" at 10 percent of a fund's holdings. Swirsky said liquidity requirements are "significant by their absence" in the rules. "I would not be surprised if that's added to the rule," she said.
Insurance Program
Such a change could provide funds with a better chance of meeting sudden, large withdrawal requests without being forced to sell assets at a loss, Swirsky said.
Bernanke's second approach would involve establishing "a limited system of insurance for money-market mutual funds that seek to maintain a stable net asset value," he said.
Three days after the demise of Reserve Primary, the U.S. Treasury set up the Temporary Guarantee Program for Money Market Funds, insuring participating funds against losses for three months. The program, which succeeded in halting the panic surrounding money funds, has since been extended to April 30.
Peter Crane, president of Crane Data LLC, a money-fund tracking firm in Westborough, Massachusetts, said Bernanke appears to be calling for a private insurance program or "quasi- government" version to take over from the Treasury on a permanent basis.
Crane said this and the rest of Bernanke's remarks would likely be well-received by the investment industry.
"We all need to be sensitive that radical change may do more harm than good," Charles Morrison, head of money markets at Boston-based Fidelity Investments, said in an interview. Fidelity managed $500 billion in money-market assets as of Jan. 31.
To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
Last Updated: March 11, 2009 08:26 EDT
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* STORY
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*
Bernanke Proposes Less Restrictive Money-Fund Rules (Correct)
Share | Email | Print | A A A
By Christopher Condon
(Corrects spelling of Morrison in last paragraph.)
March 11 (Bloomberg) -- U.S. Federal Reserve Chairman Ben S. Bernanke said more regulation may be needed for money-market mutual funds, though he didn't endorse rules backed by former Fed chief Paul Volcker that would treat the industry more like banks.
Lawmakers and regulators should consider added restrictions on assets that money funds can own and a new "limited system of insurance" to protect investors, Bernanke said yesterday in a speech urging broad changes to U.S. financial oversight.
The comments signal Bernanke favors less aggressive rules for money funds than those recommended by a group including Volcker, an adviser to President Barack Obama. The group proposes regulating money-market funds more like banks, with reserve requirements and mandatory federal insurance.
NOTE:the commended signals benanke he favors less agressives rulefor money funs.
"He's being more measured in his remarks," Joan Swirsky, an attorney at Philadelphia law firm Stradley Ronon Stevens & Young LLP and a money-market fund legal specialist, said of Bernanke. "He's not throwing out the baby with the bathwater."
The proposals backed by the Volcker group "would eliminate money funds as we know them," Paul Schott Stevens, president of funds trade group the Investment Company Institute, said after they were disclosed in January.
Money-market mutual funds have drawn scrutiny since the collapse of the $62.5 billion Reserve Primary Fund in September. The New York-based money fund was the first in 14 years to break the buck, or drop below $1 a share. Its collapse, caused by losses on debt issued by bankrupt Lehman Brothers Holdings Inc., rattled confidence in the money funds, long considered the safest investments after bank accounts and Treasury debt.
Run on Funds
The incident sparked an industrywide run on money funds that can invest in corporate debt, known as prime funds. The retreat temporarily crippled the market for commercial paper as prime funds reduced holdings of the highest-rated debt by $200.3 billion, or 29 percent, in the final two weeks of September.
That helped drive the cost of issuing commercial paper to its highest level in eight months, squeezing companies, banks and public institutions that rely on the market to raise cash for expenses such as payroll. Combined with a pullback in bank lending, the commercial-paper freeze threatened to choke the economy.
The turmoil prompted regulatory proposals from the Group of Thirty, an independent policy organization whose members include Volcker, Treasury Secretary Timothy Geithner and Lawrence Summers, head of the White House's National Economic Council. In January, the group recommended that money funds either accept banking-industry controls or give up accounting rules that allow them to maintain a stable $1-a-share net asset value, or NAV.
Favoring Banks
Stevens, of the Washington-based Investment Company Institute, at the time called the Group of Thirty proposals "extraordinarily far-reaching recommendations that were made without any thought."
Volcker "wanted to kill money-market funds in favor of the banking sector" when he was chairman of the Fed from 1979 to 1987, Steven said.
ICI spokesman Gregory Ahern yesterday welcomed Bernanke's remarks without commenting on the specific proposals.
"We agree with Chairman Bernanke that money-market funds play a crucial role in the U.S. economy and appreciate his comments on the need to increase the resiliency of the money markets, generally, and money-market funds, in particular," he said.
NOTE:
The ICI in November formed a panel headed by Vanguard Group Inc. Chairman John J. Brennan to develop recommendations to improve the money-market fund industry. It is due to deliver its report by the end of March.
Assets in money-market funds have climbed to $3.83 trillion since falling to $3.33 trillion in the week following the freeze- up of Reserve Primary.
Two Approaches
Bernanke, in his speech to the Council on Foreign Relations, outlined two approaches to making money-market funds more stable. The first would place tighter restrictions on what funds could buy, "potentially requiring shorter maturities and increased liquidity."
Under rule 2a-7 of the Investment Company Act of 1940, money funds are required to invest only in highly rated debt that matures in less than 13 months.
Bernanke's remarks suggest the maturity limits could be shortened or "laddered," Swirsky said. That might require different percentage levels of a fund's portfolio to fall under staggered maturity caps.
Rule 2a-7 doesn't contain restrictions linked to the liquidity of investments other than to cap "illiquid securities" at 10 percent of a fund's holdings. Swirsky said liquidity requirements are "significant by their absence" in the rules. "I would not be surprised if that's added to the rule," she said.
Insurance Program
Such a change could provide funds with a better chance of meeting sudden, large withdrawal requests without being forced to sell assets at a loss, Swirsky said.
Bernanke's second approach would involve establishing "a limited system of insurance for money-market mutual funds that seek to maintain a stable net asset value," he said.
Three days after the demise of Reserve Primary, the U.S. Treasury set up the Temporary Guarantee Program for Money Market Funds, insuring participating funds against losses for three months. The program, which succeeded in halting the panic surrounding money funds, has since been extended to April 30.
Peter Crane, president of Crane Data LLC, a money-fund tracking firm in Westborough, Massachusetts, said Bernanke appears to be calling for a private insurance program or "quasi- government" version to take over from the Treasury on a permanent basis.
Crane said this and the rest of Bernanke's remarks would likely be well-received by the investment industry.
"We all need to be sensitive that radical change may do more harm than good," Charles Morrison, head of money markets at Boston-based Fidelity Investments, said in an interview. Fidelity managed $500 billion in money-market assets as of Jan. 31.
To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
Last Updated: March 11, 2009 08:26 EDT
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Saturday, April 11, 2009
US JUNK BOND MUTUAL FUND POST $80 MLN OUTFLOW-AMG.
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US junk bond mutual funds post $80 mln outflows-AMG
Thu Mar 12, 2009 3:42pm EDT
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NEW YORK, March 12 (Reuters) - U.S. junk bond mutual funds posted $80 million in net outflows in the week ended March 11, the third consecutive weekly outflow, AMG Data Services reported on Thursday.
The funds had reported $689 million in net outflows the previous week, AMG said.
Junk bonds are rated below investment grade and carry high yields to compensate for their risks. Junk bond funds have attracted cash as low interest rates on safe-haven U.S. Treasuries and money market funds prompted investors to shift into high-yielding bonds.
NOTE:the junk bond have aattracted cash as low interest rate and rhe treasuries money market funds promoted investors to shift into yieldding
bonds.
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US junk bond mutual funds post $80 mln outflows-AMG
Thu Mar 12, 2009 3:42pm EDT
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NEW YORK, March 12 (Reuters) - U.S. junk bond mutual funds posted $80 million in net outflows in the week ended March 11, the third consecutive weekly outflow, AMG Data Services reported on Thursday.
The funds had reported $689 million in net outflows the previous week, AMG said.
Junk bonds are rated below investment grade and carry high yields to compensate for their risks. Junk bond funds have attracted cash as low interest rates on safe-haven U.S. Treasuries and money market funds prompted investors to shift into high-yielding bonds.
NOTE:the junk bond have aattracted cash as low interest rate and rhe treasuries money market funds promoted investors to shift into yieldding
bonds.
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The Madoff Scandal
A courtroom drawing shows Bernard Madoff entering his plea of guilty in Manhattan Federal Court, March 12, 2009. REUTERS/Shirley Shepard
Madoff pleads guilty
Bernard Madoff pleaded guilty to charges he orchestrated the biggest financial swindle in Wall Street history and was ordered to jail to await a sentence that could last the rest of his life. Full Article | Video
Madoff statement: How I did it (.pdf)
From penthouse to penitentiary
Victims feel anger, bitterness
Quotes: Madoff and investors speak
Full Coverage: More on the scandal
More Market News
FOREX-Euro hits 2-mth high vs yen as concerns grow over QE
UPDATE 1-EU opens in-depth probe into Dexia restructuring
RPT-UPDATE 2-SAS sets rights issue at 88 pct discount
Spain's Solbes says no talk of Irish bailout
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4 tips on finding a good money-market mutual fund
By The Associated Press – 13 hours ago
Money-market mutual funds hold about $3.9 trillion in assets, and have become increasingly popular places to park cash amid the beating that stocks and even bonds have taken lately. Here are tips from experts on how to find the best money funds:
1. FIND THE RIGHT FIT: While their yields are pretty low across the board, different types of money funds invest in different types of debt. So pick the right type to balance how much safety you're willing to give up for a slightly higher yield.
Many funds buy super-safe government debt such as Treasury bills, and generally carry the lowest yields — currently averaging a minuscule 0.1 percent or so. So-called prime funds seek slightly higher yields but accept marginal risk by venturing into some forms of corporate bonds, which carry the risk of default.
NOTE:many funds super-safe goverment debt as the treasury bills, preme funds seek slihtly higeher yields but accept marginal risk by venturing into the some forms of corporate bonds.
Money-market funds can also invest large sums in bank certificates of deposit, and command higher interest rates than you could get on your own. So-called tax-free money funds can invest in debt issued by state or local governments, which can offer tax advantages.
2. RESIST THE CHASE FOR YIELD: If you're comparing money fund yields, resist the temptation to buy a fund just based on a higher yield. Be sure to research the fund. Try to determine what risks the fund may be taking to generate the higher return — such as a soured investment in Lehman Brothers bonds, that led one money fund to expose investors to losses last fall.
3. CHECK EXPENSES: Fund expenses are a big consideration because a small difference in the amount you pay can offset the relatively modest yield of a money fund. Generally, look for expense ratios below 0.5 percent.
4. MONITOR FEES: With money fund yields at historic lows, fund companies are finding they can barely meet fund expenses and make a profit. That pressures the companies to pass on higher fees. Monitor disclosures about such fee increases.
Copyright © 2009 The Associated Press. All rights reserved.
Related articles
* Money fund assets rose to $3.906T in latest week
eTaiwan News - 8 hours ago
* Shakeout from money fund's collapse just starting
The Associated Press - 13 hours ago
* Changes Swirling Around Formerly Low-Profile Money Funds Says AP
Crane Data LLC - 10 hours ago
* More coverage (6) »
Add News to your iGoogle Homepage Add News to your iGoogle Homepage
The Associated Press
©2009 Google - About Google News - Blog - Help Center - Help for Publishers - Terms of Use - Privacy Policy - Google Home
4 tips on finding a good money-market mutual fund
By The Associated Press – 13 hours ago
Money-market mutual funds hold about $3.9 trillion in assets, and have become increasingly popular places to park cash amid the beating that stocks and even bonds have taken lately. Here are tips from experts on how to find the best money funds:
1. FIND THE RIGHT FIT: While their yields are pretty low across the board, different types of money funds invest in different types of debt. So pick the right type to balance how much safety you're willing to give up for a slightly higher yield.
Many funds buy super-safe government debt such as Treasury bills, and generally carry the lowest yields — currently averaging a minuscule 0.1 percent or so. So-called prime funds seek slightly higher yields but accept marginal risk by venturing into some forms of corporate bonds, which carry the risk of default.
NOTE:many funds super-safe goverment debt as the treasury bills, preme funds seek slihtly higeher yields but accept marginal risk by venturing into the some forms of corporate bonds.
Money-market funds can also invest large sums in bank certificates of deposit, and command higher interest rates than you could get on your own. So-called tax-free money funds can invest in debt issued by state or local governments, which can offer tax advantages.
2. RESIST THE CHASE FOR YIELD: If you're comparing money fund yields, resist the temptation to buy a fund just based on a higher yield. Be sure to research the fund. Try to determine what risks the fund may be taking to generate the higher return — such as a soured investment in Lehman Brothers bonds, that led one money fund to expose investors to losses last fall.
3. CHECK EXPENSES: Fund expenses are a big consideration because a small difference in the amount you pay can offset the relatively modest yield of a money fund. Generally, look for expense ratios below 0.5 percent.
4. MONITOR FEES: With money fund yields at historic lows, fund companies are finding they can barely meet fund expenses and make a profit. That pressures the companies to pass on higher fees. Monitor disclosures about such fee increases.
Copyright © 2009 The Associated Press. All rights reserved.
Related articles
* Money fund assets rose to $3.906T in latest week
eTaiwan News - 8 hours ago
* Shakeout from money fund's collapse just starting
The Associated Press - 13 hours ago
* Changes Swirling Around Formerly Low-Profile Money Funds Says AP
Crane Data LLC - 10 hours ago
* More coverage (6) »
Add News to your iGoogle Homepage Add News to your iGoogle Homepage
The Associated Press
©2009 Google - About Google News - Blog - Help Center - Help for Publishers - Terms of Use - Privacy Policy - Google Home
Wednesday, April 8, 2009
FUND TIME: SUPREME COURT TO WEIGH IN ON MUTUAL FUNDS FEES
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Fund Times: Supreme Court to Weigh In on Mutual Fund Fees
Plus, more fund mergers announced.
By Ryan Leggio | 03-12-09 | 01:45 PM | E-mail Article | Print Article | Permissions/Reprints | Ryan's Monthly Newsletter
The Supreme Court announced this week that it will review the fund fee case brought against Harris Associates, advisor to the Oakmark funds. The Supreme Court will hear oral arguments for Jones v. Harris this fall. As we've reported before in Fund Times, the Supreme Court will weigh in on whether Harris' fees were excessive. For more information, including the legal question the Supreme Court will tackle, check out Oyez. For a more detailed analysis of the case, including what an overruling might mean for mutual fund shareholder fees, see this Fund Spy.
Transamerica Fires Advisors
Transamerica has fired TCW and AllianceBernstein from Transamerica Partners Large Value Fund (DVEIX
Sponsored by:
DVEIX) because of performance and volatility. Stepping in for AllianceBernstein is Philadelphia-based quant shop Aronson+Johnson+Ortiz (AJO). AJO comanages another Transamerica fund, Transamerica Partners Large Core (DVGIX
Sponsored by:
DVGIX), with BlackRock. AJO also manages Quaker Small-Cap Value (QUSVX
Sponsored by:
QUSVX), a small-blend fund, and Absolute Strategies (ASFIX
Sponsored by:
ASFIX), a fund of funds within the long-short category.
Three-Time Morningstar Manager of the Year Award Winner to Take Sabbatical
FPA's Bob Rodriguez announced that he will step back from day-to-day management of his funds, FPA Capital (FPPTX
Sponsored by:
FPPTX) and FPA New Income (FPNIX
Sponsored by:
FPNIX), in 2010. Please see my colleague Russel Kinnel's take on what the departure means for shareholders.
Vanguard Adopts New Policy for Controversial Holdings
Vanguard's fund board recently directed the firm to report back on companies in which it invests that might be involved with human rights' abuses. Vanguard, along with other investment firms, has been subject to criticism from special-interest groups that object to the funds' investments in firms such as PetroChina (PTR
Sponsored by:
PTR).
Under the new policy, the fund board will receive regular reports on companies in which they invest "whose direct involvement in crimes against humanity or patterns of egregious abuses of human rights would warrant engagement or potential divestment."
NOTE: the new policy will receive the regular reports on the companies.
It is unclear what impact this new procedure will ultimately have on a formal shareholder proposal from Investors Against Genocide, which would require a similar review process for holdings at 30 Vanguard funds.
RiverSource and Seligman Fund Merger Update
Just weeks after RiverSource's purchase of Seligman, RiverSource says it plans to merge 47 Seligman and RiverSource funds. The affected funds include Riversource Global Technology (AXIAX
Sponsored by:
AXIAX), which would be merged into Seligman Global Technology (SHGTX
Sponsored by:
SHGTX). Meanwhile, Seligman Common Stock (SCSFX
Sponsored by:
SCSFX) would merge into RiverSource Disciplined Equity (AQEAX
Sponsored by:
AQEAX). In addition, the majority of Seligman's single-state municipal-bond fund lineup would be merged into Seligman National Municipal (SNXEX
Sponsored by:
SNXEX).
Of the 47 funds involved, 30 Seligman funds will charge shareholders 0.16% of assets to change transfer agents. We're disappointed that RiverSource elected to pass this cost on to fundholders, though the mergers should generate economies of scale and using one transfer agent for all funds should result in some annual savings over the long term. These savings will lower the expense ratios on most of the merged Seligman funds 12 months after they are merged, which is expected (pending shareholder approval) in May.
NOTE: the mergers should the generate economies these saving will lower the expences ratio on most of the merged seligmas funds.
Fidelity Launches Cheaper Share Class for Retirement Plans
Fidelity is launching a new low-cost share class aimed at retirement plans. The new K shares will be available only through retirement plans. For example, while Fidelity Freedom 2030 (FFFEX
Sponsored by:
FFFEX) charges 0.76%, the K shares will be almost 30% cheaper and charge only 0.54%.
To read more about the securities mentioned in this article, become a Morningstar.com Premium Member. Gain access to comprehensive investment research including Morningstar's stock fair value estimates, company economic moat ratings, Fund Analyst Picks, and Fund Stewardship Grades. Click here to start a free 14-day trial.
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Ryan Leggio, Esq., is a fund analyst with Morningstar.
Authors can be reached at Analyst Feedback.
Ryan Leggio does not own shares in any of the securities mentioned above.
Find out about Morningstar's editorial policies.
Reproduction or use of this article or any portion of it is forbidden without the express written permission of Morningstar, Inc.
Premium Content Morningstar Analyst ReportGet Morningstar's Buy/Sell opinions on the tickers mentioned in this article:
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Related NewsDVGIX: New portfolio
02-10-09 | 12:00 AM
FPPTX: Rodriguez to Step Back from Managing Funds at FPA
03-10-09 | 09:26 AM
FPNIX: First Pacific Advisors CEO Robert L. Rodriguez Plans One-Year Sabbatical in 2010
03-10-09 | 08:00 AM
DVEIX: New portfolio
02-10-09 | 12:00 AM
SCSFX: Equity Style Box change
01-23-09 | 12:00 AM
Also in Fund TimesRodriguez to Step Back from Managing Funds at FPA
By Russel Kinnel | 03-10-09 | 09:26 AM
Fund Times: AllianceBernstein CEO Subpoenaed
By Katie Rushkewicz | 03-05-09 | 11:04 AM
Relief for Hedge Funds in January
By Nadia Papagiannis, CFA | 02-26-09 | 04:00 PM
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Fund Times Fund Times: Supreme Court to Weigh In on Mutual Fund Fees Ryan Leggio, Esq., is a fund analyst with Morningstar.
http://news.morningstar.com/articlenet/article.aspx?id=283754 ryan.leggio@morningstar.com;
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Russell
390.12 23.81(6.50%)
Morningstar Mkt Idx
1837.09 73.58(4.17%)
Morningstar Svs Idx
1918.32 103.09(5.67%)
Morningstar Info Idx
1987.93 61.50(3.19%)
DJIA
7170.06 239.66(3.45%)
Display Settings:
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Next Article from the last 7 days
Fund Times: Supreme Court to Weigh In on Mutual Fund Fees
Plus, more fund mergers announced.
By Ryan Leggio | 03-12-09 | 01:45 PM | E-mail Article | Print Article | Permissions/Reprints | Ryan's Monthly Newsletter
The Supreme Court announced this week that it will review the fund fee case brought against Harris Associates, advisor to the Oakmark funds. The Supreme Court will hear oral arguments for Jones v. Harris this fall. As we've reported before in Fund Times, the Supreme Court will weigh in on whether Harris' fees were excessive. For more information, including the legal question the Supreme Court will tackle, check out Oyez. For a more detailed analysis of the case, including what an overruling might mean for mutual fund shareholder fees, see this Fund Spy.
Transamerica Fires Advisors
Transamerica has fired TCW and AllianceBernstein from Transamerica Partners Large Value Fund (DVEIX
Sponsored by:
DVEIX) because of performance and volatility. Stepping in for AllianceBernstein is Philadelphia-based quant shop Aronson+Johnson+Ortiz (AJO). AJO comanages another Transamerica fund, Transamerica Partners Large Core (DVGIX
Sponsored by:
DVGIX), with BlackRock. AJO also manages Quaker Small-Cap Value (QUSVX
Sponsored by:
QUSVX), a small-blend fund, and Absolute Strategies (ASFIX
Sponsored by:
ASFIX), a fund of funds within the long-short category.
Three-Time Morningstar Manager of the Year Award Winner to Take Sabbatical
FPA's Bob Rodriguez announced that he will step back from day-to-day management of his funds, FPA Capital (FPPTX
Sponsored by:
FPPTX) and FPA New Income (FPNIX
Sponsored by:
FPNIX), in 2010. Please see my colleague Russel Kinnel's take on what the departure means for shareholders.
Vanguard Adopts New Policy for Controversial Holdings
Vanguard's fund board recently directed the firm to report back on companies in which it invests that might be involved with human rights' abuses. Vanguard, along with other investment firms, has been subject to criticism from special-interest groups that object to the funds' investments in firms such as PetroChina (PTR
Sponsored by:
PTR).
Under the new policy, the fund board will receive regular reports on companies in which they invest "whose direct involvement in crimes against humanity or patterns of egregious abuses of human rights would warrant engagement or potential divestment."
NOTE: the new policy will receive the regular reports on the companies.
It is unclear what impact this new procedure will ultimately have on a formal shareholder proposal from Investors Against Genocide, which would require a similar review process for holdings at 30 Vanguard funds.
RiverSource and Seligman Fund Merger Update
Just weeks after RiverSource's purchase of Seligman, RiverSource says it plans to merge 47 Seligman and RiverSource funds. The affected funds include Riversource Global Technology (AXIAX
Sponsored by:
AXIAX), which would be merged into Seligman Global Technology (SHGTX
Sponsored by:
SHGTX). Meanwhile, Seligman Common Stock (SCSFX
Sponsored by:
SCSFX) would merge into RiverSource Disciplined Equity (AQEAX
Sponsored by:
AQEAX). In addition, the majority of Seligman's single-state municipal-bond fund lineup would be merged into Seligman National Municipal (SNXEX
Sponsored by:
SNXEX).
Of the 47 funds involved, 30 Seligman funds will charge shareholders 0.16% of assets to change transfer agents. We're disappointed that RiverSource elected to pass this cost on to fundholders, though the mergers should generate economies of scale and using one transfer agent for all funds should result in some annual savings over the long term. These savings will lower the expense ratios on most of the merged Seligman funds 12 months after they are merged, which is expected (pending shareholder approval) in May.
NOTE: the mergers should the generate economies these saving will lower the expences ratio on most of the merged seligmas funds.
Fidelity Launches Cheaper Share Class for Retirement Plans
Fidelity is launching a new low-cost share class aimed at retirement plans. The new K shares will be available only through retirement plans. For example, while Fidelity Freedom 2030 (FFFEX
Sponsored by:
FFFEX) charges 0.76%, the K shares will be almost 30% cheaper and charge only 0.54%.
To read more about the securities mentioned in this article, become a Morningstar.com Premium Member. Gain access to comprehensive investment research including Morningstar's stock fair value estimates, company economic moat ratings, Fund Analyst Picks, and Fund Stewardship Grades. Click here to start a free 14-day trial.
E-mail Article to a Friend | digg it | Del.icio.us
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Ryan Leggio, Esq., is a fund analyst with Morningstar.
Authors can be reached at Analyst Feedback.
Ryan Leggio does not own shares in any of the securities mentioned above.
Find out about Morningstar's editorial policies.
Reproduction or use of this article or any portion of it is forbidden without the express written permission of Morningstar, Inc.
Premium Content Morningstar Analyst ReportGet Morningstar's Buy/Sell opinions on the tickers mentioned in this article:
DVGIX | FPPTX | FPNIX | DVEIX | SCSFX | SNXEX | SHGTX | AXIAX | FFFEX | QUSVX | PTR | AQEAX | ASFIX
Institutional Investor Magazine - FREE TRIAL
Related NewsDVGIX: New portfolio
02-10-09 | 12:00 AM
FPPTX: Rodriguez to Step Back from Managing Funds at FPA
03-10-09 | 09:26 AM
FPNIX: First Pacific Advisors CEO Robert L. Rodriguez Plans One-Year Sabbatical in 2010
03-10-09 | 08:00 AM
DVEIX: New portfolio
02-10-09 | 12:00 AM
SCSFX: Equity Style Box change
01-23-09 | 12:00 AM
Also in Fund TimesRodriguez to Step Back from Managing Funds at FPA
By Russel Kinnel | 03-10-09 | 09:26 AM
Fund Times: AllianceBernstein CEO Subpoenaed
By Katie Rushkewicz | 03-05-09 | 11:04 AM
Relief for Hedge Funds in January
By Nadia Papagiannis, CFA | 02-26-09 | 04:00 PM
Most Popular Morningstar ArticlesClick here to view all.
Permissions/Reprints To order reprints of this article, click here.
Printable ArticleClick here to print this article.
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Fund Times Fund Times: Supreme Court to Weigh In on Mutual Fund Fees Ryan Leggio, Esq., is a fund analyst with Morningstar.
http://news.morningstar.com/articlenet/article.aspx?id=283754 ryan.leggio@morningstar.com;
Monday, April 6, 2009
THE GOOD , BAD , AND UGLY IN HEDGE : A MANAGER 'S VIEW
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MyTake March 5, 2009, 12:01AM EST
The Good, Bad, and Ugly in Hedge Funds: A Manager's View
BusinessWeek reader and hedge fund manager Eric Jackson considers the pros and cons of his industry
By Eric Jackson
null
Naples (Fla.)-based BusinessWeek reader Eric Jackson is founder and managing member of Ironfire Capital LLC and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund Ltd.
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Not too long ago, practically every newly minted MBA wanted to be a hedge fund manager, and investors—including many conservative pension funds and endowments—rushed at the chance to place assets in hedge funds. Yet hedge fund managers were blamed for both artificially inflating the price of oil last summer and, when prices dropped, for contributing to the looming recession.
The mainstream press has now taken to derisively calling them "former masters of the universe," while noting that compensation is still "obscene." As quickly as assets came in during the up market, they have gone out in a declining market. In the last quarter of 2008, $152 billion in hedge fund assets were redeemed, even ones with positive returns in 2008
As a hedge fund manager, I'm neither an apologist nor a cheerleader for my industry. Like any business, the hedge fund world has good and bad practices and managers. All managers need to accept accountability for the trying times we are living through. But it's fanciful to suggest hedge funds are about to disappear. Quite the opposite: The industry will be thriving even five years from now because it will continue to attract the best managers and the most sophisticated investors seeking alpha through innovative strategies. Here are some of the good and bad practices in the industry today:
Barbarians at the Gates
NOTE: the all manager needs to accept accountability for the trying times that we are living through.
Hedge funds have long had "gates" as options available to the fund and/or manager included in their subscription documents. All investors reviewed these prior to making an investment. You haven't heard much about them because hedge funds haven't gone through a sustained down period the way we have in the past six months. As a result, a number of funds have exercised their rights to enforce a gate, reducing how quickly investors can redeem out of the fund. The intent of a gate is to prevent a panicked run on the fund, requiring forced selling, which can be very difficult for funds holding illiquid assets, and which further lowers the value of the remaining investors' assets in the fund.
Gates are a perfectly legitimate operating mechanism and will continue to be part of hedge fund investing. Moreover, as so many funds have decided to use them in the past four months, it is unlikely any one fund will be unfairly penalized by investors when they raise new funds down the road. The managers who will be penalized for putting up a gate are the ones who continue to charge fees after doing so. That's their right under their agreements, but it certainly doesn't engender goodwill, and investors tend to have elephant-like memories.
Overpaid and Underperforming?
Critics have attacked the standard hedge fund compensation model of 2% annual management fee and 20%-of-profits performance fee in light of the industry's poor 2008 performance (-19.2% for the average fund, according to Hennessee Group). Yes, many hedge fund managers made bad calls in 2008, but one-third of hedge funds made money in a year when the Standard & Poor's 500-stock index was down 40%. Only 1 in 1,700 mutual funds made money in the same period, meaning you were 50 times more likely to make money in a hedge fund compared to a mutual fund last year. What is that worth in fees?
Sadly, some hedge fund managers don't help themselves in the court of public opinion. Call it John Thain-itis. Many media profiles of hedge fund managers mention private jets, homes in the Hamptons, and flashy lifestyles, none of which has any predictive value about whether a hedge fund is a good investment. It's always been about the returns over a specific period of time, and the comparable risk-reward of other alternatives to invest their money.
Eyeing High-Water Marks
Hedge funds typically have high-water marks, which require hedge fund managers to make their investors whole before paying themselves performance fees. These high-water marks are going to cast a large shadow in the industry for the next few years.
What high-water marks also do—from an investor's perspective—is level the differences between a hedge fund and a mutual fund or other asset manager. Any investor has to pay a percentage of assets in management fees to a money manager. In the case of hedge funds, an investor pays performance fees only when the manager makes money. Investors also know that hedge funds will invariably attract more talent because the compensation levels are higher than the mutual fund industry or elsewhere.
Some observers feel that high-water marks are not the panacea they seem. In a down year, they argue, you can just shut down your fund to avoid the pain of making back past losses and open up another shop across the street. Although this can and does happen, it's just as common for hedge funds to honor their high-water marks instead of taking the easy way out and shutting down, eliminating the high-water mark, and reopening later.
Bottom line: If managers screw up, they need to face the consequences. It's that kind of Darwinism which makes the industry strong. Investors shouldn't have any qualms about having to pay performance—or more correctly stated, revenue-sharing—fees.
Reconciling Differences
With over 10,000 hedge funds worldwide in 2008, funds naturally vary in size and strategy. Some pursue absolute returns, always seeking to grow capital, no matter the market; others aim to beat the S&P or other benchmark on a relative basis. Absolute and relative performance strategies have different levels of volatility due to the different types of risk they take on.
James Simons of Renaissance Technologies recently announced that his firm would not charge fees to existing investors for its Institutional Futures fund, which was down 12% in 2008, but would still charge fees on its Institutional Equities fund, which was down 16%. The difference between the two funds? The first follows an absolute return strategy, while the second aims to beat the S&P 500 by 4% to 6%, which it did.
There is no question that there's a sea change taking place in the hedge fund industry, which saw its assets decline by $782 billion, to $1.21 trillion, in the past year. That's a Detroit-like drop in demand on a year-over-year basis. Within five years, it's likely the mega-funds will dominate, similar to the private equity world, where you have KKR, Bain, T.H. Lee, and a lot of small fry.
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MyTake March 5, 2009, 12:01AM EST
The Good, Bad, and Ugly in Hedge Funds: A Manager's View
BusinessWeek reader and hedge fund manager Eric Jackson considers the pros and cons of his industry
By Eric Jackson
null
Naples (Fla.)-based BusinessWeek reader Eric Jackson is founder and managing member of Ironfire Capital LLC and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund Ltd.
Story Tools
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Click here to find out more!
Not too long ago, practically every newly minted MBA wanted to be a hedge fund manager, and investors—including many conservative pension funds and endowments—rushed at the chance to place assets in hedge funds. Yet hedge fund managers were blamed for both artificially inflating the price of oil last summer and, when prices dropped, for contributing to the looming recession.
The mainstream press has now taken to derisively calling them "former masters of the universe," while noting that compensation is still "obscene." As quickly as assets came in during the up market, they have gone out in a declining market. In the last quarter of 2008, $152 billion in hedge fund assets were redeemed, even ones with positive returns in 2008
As a hedge fund manager, I'm neither an apologist nor a cheerleader for my industry. Like any business, the hedge fund world has good and bad practices and managers. All managers need to accept accountability for the trying times we are living through. But it's fanciful to suggest hedge funds are about to disappear. Quite the opposite: The industry will be thriving even five years from now because it will continue to attract the best managers and the most sophisticated investors seeking alpha through innovative strategies. Here are some of the good and bad practices in the industry today:
Barbarians at the Gates
NOTE: the all manager needs to accept accountability for the trying times that we are living through.
Hedge funds have long had "gates" as options available to the fund and/or manager included in their subscription documents. All investors reviewed these prior to making an investment. You haven't heard much about them because hedge funds haven't gone through a sustained down period the way we have in the past six months. As a result, a number of funds have exercised their rights to enforce a gate, reducing how quickly investors can redeem out of the fund. The intent of a gate is to prevent a panicked run on the fund, requiring forced selling, which can be very difficult for funds holding illiquid assets, and which further lowers the value of the remaining investors' assets in the fund.
Gates are a perfectly legitimate operating mechanism and will continue to be part of hedge fund investing. Moreover, as so many funds have decided to use them in the past four months, it is unlikely any one fund will be unfairly penalized by investors when they raise new funds down the road. The managers who will be penalized for putting up a gate are the ones who continue to charge fees after doing so. That's their right under their agreements, but it certainly doesn't engender goodwill, and investors tend to have elephant-like memories.
Overpaid and Underperforming?
Critics have attacked the standard hedge fund compensation model of 2% annual management fee and 20%-of-profits performance fee in light of the industry's poor 2008 performance (-19.2% for the average fund, according to Hennessee Group). Yes, many hedge fund managers made bad calls in 2008, but one-third of hedge funds made money in a year when the Standard & Poor's 500-stock index was down 40%. Only 1 in 1,700 mutual funds made money in the same period, meaning you were 50 times more likely to make money in a hedge fund compared to a mutual fund last year. What is that worth in fees?
Sadly, some hedge fund managers don't help themselves in the court of public opinion. Call it John Thain-itis. Many media profiles of hedge fund managers mention private jets, homes in the Hamptons, and flashy lifestyles, none of which has any predictive value about whether a hedge fund is a good investment. It's always been about the returns over a specific period of time, and the comparable risk-reward of other alternatives to invest their money.
Eyeing High-Water Marks
Hedge funds typically have high-water marks, which require hedge fund managers to make their investors whole before paying themselves performance fees. These high-water marks are going to cast a large shadow in the industry for the next few years.
What high-water marks also do—from an investor's perspective—is level the differences between a hedge fund and a mutual fund or other asset manager. Any investor has to pay a percentage of assets in management fees to a money manager. In the case of hedge funds, an investor pays performance fees only when the manager makes money. Investors also know that hedge funds will invariably attract more talent because the compensation levels are higher than the mutual fund industry or elsewhere.
Some observers feel that high-water marks are not the panacea they seem. In a down year, they argue, you can just shut down your fund to avoid the pain of making back past losses and open up another shop across the street. Although this can and does happen, it's just as common for hedge funds to honor their high-water marks instead of taking the easy way out and shutting down, eliminating the high-water mark, and reopening later.
Bottom line: If managers screw up, they need to face the consequences. It's that kind of Darwinism which makes the industry strong. Investors shouldn't have any qualms about having to pay performance—or more correctly stated, revenue-sharing—fees.
Reconciling Differences
With over 10,000 hedge funds worldwide in 2008, funds naturally vary in size and strategy. Some pursue absolute returns, always seeking to grow capital, no matter the market; others aim to beat the S&P or other benchmark on a relative basis. Absolute and relative performance strategies have different levels of volatility due to the different types of risk they take on.
James Simons of Renaissance Technologies recently announced that his firm would not charge fees to existing investors for its Institutional Futures fund, which was down 12% in 2008, but would still charge fees on its Institutional Equities fund, which was down 16%. The difference between the two funds? The first follows an absolute return strategy, while the second aims to beat the S&P 500 by 4% to 6%, which it did.
There is no question that there's a sea change taking place in the hedge fund industry, which saw its assets decline by $782 billion, to $1.21 trillion, in the past year. That's a Detroit-like drop in demand on a year-over-year basis. Within five years, it's likely the mega-funds will dominate, similar to the private equity world, where you have KKR, Bain, T.H. Lee, and a lot of small fry.
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Single Solution for All Vital Quant Processes. Save Time. Learn More!
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Specialized due diligence investigations for fund managers.
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