Fidelity Promoting FDIC-Insured CDs
With the markets siphoning value from mutual funds and investors running for cover to the tune of billions of dollars in redemptions a month, Fidelity Investments is trying to hold onto customers' assets by promoting FDIC-insured certificates of deposit.
Fidelity is promoting the CDs through mailers to existing clients and in no-nonsense advertisements.
Certainly, Fidelity is being impacted by the downturn, having announced it is laying off a total of 3,000 people, or 7% of its workforce, by the end of the first quarter of 2009. Thus, it makes sense that Fidelity is trying to hold onto assets, even in lower-paying CDs.
"As you might expect, in this volatile market, our customers have expressed interest in conservative, fixed-income investments," Fidelity spokeswoman Jennifer Engle said. Fidelity is letting its customers know that, like banks, CDs are available at select mutual fund companies, including Fidelity.
Fed Extends Three Liquidity Facilities
With no end in sight for the financial crisis, the Federal Reserve Board said Tuesday it will extend three of its liquidity programs through April 30.
The primary dealer credit facility, asset-backed commercial paper money market fund liquidity facility, and the term securities lending facility were initially scheduled to end on Jan. 30.
The three-month extension means these programs will now phase out at the same time as other facilities the Fed has introduced, including the commercial paper funding facility and the money market investor funding facility.
Fed Chairman Ben Bernanke has repeatedly assured market participants that liquidity programs will remain in place as long as they are needed, meaning further extensions beyond April are possible.
The extended programs target liquidity in different sectors of the market. The PDCF lends to investment banks or the investment bank units of commercial banks, while the commercial paper facility provides loans against asset-backed paper held by financial institutions. The TSLF auctions Treasury securities.
Magellan's Lange Admits Disappointment in Results
Finance and technology stocks have put the Fidelity Magellan fund in a worse position than its benchmark, the Standard & Poor's 500, and even the fund's manager said he's disappointed.
In his semi-annual shareholder report for the period ended Sept. 30, portfolio manager Harry Lange admitted the fund did not do well. Certainly, that is true; year-to-date, the fund is down nearly 52%, compared to the 39% decline in the Standard & Poor's 500 Index.
Lange said he didn't think the financial crisis would be as pervasive as it has been, and so, held onto financial and technology stocks-which have sorely disappointed and have yet to rebound. "Looking at sectors, stock selection in technology had a sizable negative impact on the fund's performance," Lange wrote.
At this point, Lange said it could take a good long while for the economy to turn around, but in the meanwhile, he is searching for bargains in the stock market, saying that when things appear the "gloomiest" it is typically an opportune time to buy.
Lange is looking for domestic companies that export to emerging markets, as well as those with strong cash flow. "I think they have the best potential not only to survive, but eventually to thrive when the economic backdrop improves," he said.
The $21.9 billion Magellan fund rose 19% in 2007.
Legg Extends Further Support for SIV Exposure
Besides supporting four money market funds with exposure to structured investment vehicles with $420 million in capital of its own, Legg Mason has signed a one-year renewal with a bank to support $355 million in SIV securities. As of Nov. 30, the par value of SIV exposure in the funds was $2.8 billion, down from $10 billion as of Oct. 31, 2007. In conjunction with this, Legg Mason is on track to shave $120 million from its annual operating budget beginning March 31.
"Legg Mason continues to manage its resources and to take proactive steps in support of our money market funds during difficult market conditions," said Legg Mason CEO Mark R. Fetting.
"Today's actions give us financial and operating flexibility to handle potential further market deterioration. We are pursuing a number of options to eliminate exposure to SIVs in the money market funds. We have the ability and the resolve to work through these challenging markets as we act in support of our clients, our funds and our shareholders," Fetting added.
Reserve Funds Returns All Assets of Seven Funds
Reserve Funds announced it is returning all of the assets of six of its funds, at a $1 NAV, including the key Primary II and U.S. Government II funds.
The other funds are: Massachusetts Municipal Money Market, Louisiana Municipal Money Market, Reserve USD International Government and Pennsylvania Municipal Money Market. The boards of the funds voted to liquidate the funds, Reserve said in a statement. The company said it will continue to keep investors abreast of further payments. It is the first time investors have been paid back all of their monies in the dozen or so funds Reserve is shutting down following the failure of its flagship Primary Fund on Sept. 15.
CIBC Drops Timing Charges Against Flynn
CIBC has finally settled 2004 charges that former trader Paul Flynn permitted hedge funds to market time mutual funds by putting him in the clear. CIBC has dropped all charges against him.
CIBC said it had reached an "amicable resolution" with Flynn and was "sympathetic" to the difficulties he has faced over the past five years. Flynn sued CIBC, saying the bank misrepresented his role in the mutual fund market-timing scandal.
Flynn was managing director of equity investments at CIBC World Markets. The former New York Attorney General dropped his charges against Flynn in 2005, as did the Securities and Exchange Commission, in 2006.
Lord Abbett Veteran Sees Tremendous Buys Ahead
Be it large-, medium- or small-cap, value or growth, there are buying opportunities galore in the stock market, according to veteran Lord Abbett value manager Robert Fetch. "I am seeing valuations I haven't seen in decades, across the capitalization spectrum," Fetch told Barron's.
As to when the market will finally bottom out, Fetch doesn't believe this is possible for another year-even possibly not until mid 2010. But even now, he sees valuations that are attractive and that he is comfortable buying. Quoting Warren Buffett, Fetch quips: "Be fearful when people are greedy, and greedy when people are fearful."
For his part, Fetch adds: "We have gotten to the point where it pays to be a bit greedy, because there are some unusual opportunities being created right now."
Paul Tudor Jones Halts Flagship Redemptions
Rather than honor the $1.4 billion in redemptions, or 14% of the $10 billion flagship hedge fund at Paul Tudor Jones' asset management firm on Dec. 31, the company will delay making those payments until March 31, 2009, in hopes that the market will improve and assets can be sold for higher values. Normally, the fund honors redemptions once each quarter.
Tudor Jones told investors in a letter: "While Tudor BVI currently has more than $6 billion in cash, this redemption level has led us to examine the fund's liquid and illiquid positions as it relates both to making redemption payments and to the future direction of the fund."
The fund will join a handful of other hedge funds that are delaying redemptions, including Deephaven Capital Management and Blue Mountain Capital Management.
Man Group Expects Inflows to Return by 2Q09
The "perfect storm" of high volatility, withdrawals and liquidity problems that has hit hedge funds will soon subside, Man Group CEO Peter Clarke told the Hedge Fund World Zurich conference. In fact, hedge funds could turn the corner as early as the second quarter of next year, Clarke said.
"By the end of the first quarter, anyone who has to get out is out, and anywhere around there, I think we will see the beginnings of institutional inflows into the hedge fund community," he said.
Clarke also said that in light of the strong returns that hedge funds have enjoyed in recent years, this year's difficulties are merely a temporary setback.
That said, Man Research Director Thomas della Casa said there will be large-scale consolidation in the hedge fund industry, with the number of funds shrinking by about 50% from its current 10,000 level to 5,000. The largest funds are the likeliest to come through this storm, della Casa said.
Through October, hedge funds have averaged declines of 15% year-to-date, while hedge funds-of-funds are down 19% in that timeframe, according to Hedge Fund Research. Separately, Morgan Stanley estimates that hedge fund assets could fall as much as 45% by the end of the year to $1.1 trillion, down from $1.9 trillion in June.
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