Disclosure is the order of the day. The Securities and Exchange Commission is putting in place a rule requiring mutual fund companies to start disclosing how they structure portfolio managers' compensation and to indicate managers' investments in the funds they oversee, The Wall Street Journal reports.
Specifically, the rule requires funds that launch after Feb. 28 to disclose the information in their registration documents. Existing funds must report the information in their prospectuses, which are updated annually. The SEC rule aims to better align managers' interests with those of long-term shareholders. For instance, potential conflicts of interest by portfolio managers can be identified if they disclose investments they have in their mutual funds and in hedge funds.
But the rule has its share of dissenters within the industry. James Riepe, vice chairman of T. Rowe Price Group Inc. and chairman of Investment Company Institute, said the rule suggests that "you only care as a portfolio manager, as an investment analyst working on a fund, [or] if you a have a significant investment in that fund."
A few firms have already started linking managers' pay to performance. Janus Capital Group's Denver unit, for instance, agreed to a plan, effective Jan. 1, that ties bonuses to one- and three-year performance, with more emphasis on three-year results. Last year, Morningstar started grading funds based on their governance practices, with a part of the rating linked to manager incentives.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.