Alternative investments

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.

Pointing to illiquidity and poor fair valuation conditions, two ranking Congressmen have asked Securities and Exchange Commission Chairman Christopher Cox to cut mutual fund portfolio managers a break on redemptions of auction-rate securities.

Absolute-return mutual funds that seek to provide investors with positive returns whether equity markets are rising or falling, are growing in rapid numbers in today's volatile market and hoping to attract a loyal investor following.

Saudi Arabia has launched its first sovereign-wealth fund, aimed at maximizing long-term rates of return.

Rydex Investments has launched a fund of funds that offers exposure to the alternatives marketplace.

New Fund

The Charles Schwab Foundation will sponsor awards for the National Financial Literacy Challenge, a 35-question test of personal finance for high school students in the U.S.

WASHINGTON - The Office of the Comptroller of the Currency's $144 million enforcement order against Wachovia Corp. is likely to force banks to step up oversight of telemarketing customers.

Rick Lazio, head of government relations at JPMorgan Chase since 2004 and one-time candidate for New York Senator, is taking on a new role. He is now a managing director in the company’s asset management operations.

BoA Hires Former Fido Marketing EVP Huang

The Securities and Exchange Commission has announced the distribution of $30.6 million to more than 250,000 investors affected by market timing by RS Investments.

Randy Takian, head of strategy and development for Morgan Stanley’s hedge fund and alternative investment products, will head its investment management unit’s retail and intermediary business, according to Dow Jones.

Fines Continue to be Levied on Fund Companies for Market Timing & Late Trading, With a Renewed Focus on U.K. Orders

After failing to redeem $580 million of the shares of three of its tax-free closed-end funds, Eaton Vance has successfully obtained private financing for the preferred shares in question.