Alternative investments

Michael Iavarone may have rung the opening bell at the New York Stock Exchange yesterday and be poised, as owner of the magnificent Big Brown, to win the Triple Crown, but he can’t win them all.

A study by the Genocide Intervention Network, conducted with Bloomberg, has found that companies that invest in countries with poor human rights practices make bad investments, both financially as well as ethically.

Despite strict guidelines and barriers within China, which tend to turn off global fund houses from conducting business, Fidelity International recently announced that it is ready and willing to pursue joint ventures there sometime in the near future.

Industry leader SEI recently concluded in a white paper that collective investment trusts (CITs) are becoming more popular in the defined-contribution retirement market. In the first quarter of 2008 alone, 63 new collective trusts were launched, and from 2004 to 2007 CIT assets actually tripled.

In an already crowded field, Northern Trust Corp. is the latest financial-services company to try and make its mark in the exchange-traded fund business.

Talk about tapping into the powers that be inside the Beltway.

Fidelity Ventures is backing several new Internet start-ups in hopes of competing with online giant eBay, The Boston Globe reports.

Morgan Stanley has been shuffling executives and its sales strategy for its Van Kampen mutual fund unit, The Wall Street Journal reports this morning. The funds are part of Morgan Stanley Investment Management, which has $600 billion in assets and accounted for 40% of the firm’s income before taxes in 2007. Approximately one-third of that income is generated by the fund division, a third of which is sold to retail investors. The rest is primarily institutionally and foreign-sold.

Direxion Funds of New York and Boston hopes to break new ground for itself as well as the leveraged ETF marketplace.

Including lift-outs and partial deals, investment firms have shelled out more than $50 billion so far this year to acquire mutual fund companies and other asset management firms, in a record 241 deals this year, according to Jefferies Putnam Lovell, a division of Jefferies.

The CGM Mutual Fund may be nearly 80 years old, but it’s acting like a fund half its age, writes the Motley Fool.

Dow Jones Financial Information Services has announced the launch of Private Equity Source, a database for tracking buyout and growth transactions in the U.S. and Europe.

subprime crisis

NEW YORK - Cautious investors will be watching 130/30 funds over the next few years to see how the new products perform.

WASHINGTON - The credit crisis is 75% to 85% unwound in terms of the financial markets, but the economy may still be on shaky ground, Jamie Dimon, chairman and CEO of JPMorgan Chase told the 1,500 delegates assembled here for the Investment Company Institute’s 50th GMM.“I would say this thing has largely already worked its way through. It probably won’t get worse at this point. Increased capital requirements will take about six months longer” to bring markets and counter-party risk tolerance back to normalcy, Dimon said.However, he was quick to add: “The recession, I don’t know. To paraphrase Yogi Berra, it’s tough to make predictions, especially about the future.”Markets perform in cycles, Dimon reminded executives, listing the 2001 technology bubble, Long Term Capital Management’s overleveraged exposure to Russia in 1997, the real estate and savings and loan crisis of 1990, overvalued earnings in 1987 and the subsequent stock market crash, the recession of 1982 and the oil shortages in 1974.
“The difference in this one is it’s a housing crisis,” said Dimon, who included among those to blame for the subprime crisis those mortgage bankers who failed to properly verify borrowers’ income or appraisers’ real estate assessments.Dimon also praised the government for its swift action in bailing out Bear Stearns and a cadre of more than 1,000 investment bankers at his own firm who, after he got “the Thursday telephone call” about whether or not to purchase the ailing firm, spent the entire weekend performing due diligence on the deal.In answer to a question from an audience member, Dimon exhorted mutual fund executives to continue to bring innovative products to market but to be extremely cautious when doing so.As an example, Dimon said, collateralized debt obligations, CDO warehouses and structured investment vehicles that invested in subprime mortgages are so complex that to try to assess the price in one such instrument, JPMorgan ran a Monte Carlo simulation on one of its mainframe computers for seven hours.Questionable mark-to-market policies also factored into the subprime troubles, he added. But that said, Dimon said he is tired of being “vilified” by the media for bailing out Bear Stearns or operating a bank that itself sold subprime mortgages and products derived from them. And as to banks’ role in making credit and loans too available to the American public, Dimon stressed that the consumers of subprime CDOs and other structured products over the past two years, have largely been institutional and not retail investors.The ICI booked Dimon’s appearance many months ahead of JPMorgan’s recent preeminent role in partnering with the government on the Bear Stearns deal, noted Edward Bernard, chairman of the ICI’s General Membership Meeting Planning Committee, and vice chairman of T. Rowe Price Group.“We thank Mr. Dimon for honoring his commitment” at this exceptionally busy time, Bernard said.

The turmoil in the $330 billion auction rate securities (ARS) market has spurred a series of investigations by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (Finra), and Massachusetts securities regulators. Congressional leaders are calling for relief, allowing mutual funds to provide liquidity to retail investors holding the securities.

Seeking to leverage its strengths in mutual fund processing, Depository Trust & Clearing Corp. (DTCC) is readying a service that automates pre- and post-trade processes for the alternative funds market. The service is expected to launch next year, pending regulatory approval.

Asian investors fearing an extended bear market are moving their money out of riskier investments and into conservative safe havens. The mutual fund industry is responding to this shift by offering jittery investors alternative, more conservative products.

BOSTON - Retirement income planners, along with mutual and insurance fund executives, are wracking their brains to come up with new products that are low cost, easy to use and easy to sell.

Dreyfus Corp., a dominant force in money market funds as well as the high-net-worth market through its parent company, Mellon, will become a leader in long-term mutual funds and other investments, if its new chief executive, Jon Baum, meets his goal.