Fidelity VP Investigated for Entertainment Methods
The Securities and Exchange Commission has filed an order against a top advisor at Fidelity Investments, after a four-year investigation into the inappropriate use of gifts and the entertainment of prospective clients.
Peter Lynch, vice president and director of Fidelity parent company FMR, is accused of using traders on Fidelity's equity desk to score tickets to expensive and often sold-out events, including a U2 rock concert and the Ryder Cup tournament.
The SEC alleges Lynch took 61 tickets for 12 different events at a cost of $15,948. Lynch agreed to pay the amount, plus $4,183 in interest, without admitting or denying wrongdoing, and agreed to cease and desist from such conduct in the future.
"Since retiring from investment management over 17 years ago, I have not placed any trades on behalf of Fidelity with any brokerage firm," Lynch said in a statement. "In asking the Fidelity equity trading desk for occasional help locating tickets, I never intended to do anything inappropriate, and I regret having made those requests."
Fidelity said it will pay an $8 million civil penalty and that Lynch's behavior is not indicative of the ethical standard of the company.
Fidelity spokeswoman Anne Crowley said in an interview with Dow Jones that the order does not indicate any harm done to shareholders.
Buffett Tops Forbes' List of Richest People
Berkshire Hathaway's Warren Buffett has trumped Bill Gates as the world's richest person, according to Forbes magazine.
Forbes estimated Buffett's worth at $62 billion, and noted that his fortune grew by $10 billion last year.
"Even though he is giving away a piece of his fortune each year, the stock of Berkshire Hathaway, the source of Warren Buffett's wealth, has been rising very rapidly," said Steve Forbes, CEO of Forbes.
In June 2006, Buffett said he plans to give away 85% of his fortune to the Bill & Melinda Gates Foundation and four other family charities.
Gates held the No. 1 spot since 1995, after unseating Japanese real estate tycoon Yoshiaki Tsutsumi, who has been sentenced to prison for falsifying financial statements and insider trading. Gates held the top spot for 13 years, but dropped to third place this year, with an estimated worth of $58 billion.
In second place is Carlos Slim, a Mexican telecom tycoon, with an estimated worth of $60 billion.
Forbes said there are 469 billionaires in the U.S., with a combined worth of $1.6 trillion. There are 656 billionaires living outside the U.S., with a combined worth of $2.8 trillion. The rise in billionaires outside the U.S. is partly due to the decline of the U.S. dollar, and the Forbes list is tabulated in U.S. dollars.
Hedge Funds Expand Assets Despite Losses
Assets of the top 10 hedge fund companies in the U.S. grew by more than a third in 2007, despite a combined loss of $24 billion, due to redemptions and faltering performance, the Financial Times reported.
JPMorgan's Asset Management and Highbridge Capital Management remained on top with $44.7 billion assets under management, though the funds lost $8.5 billion over the course of the year, according to a survey by Absolute Return magazine.
Goldman Sachs' problems at its flagship alpha fund and two quant equity funds weighed heavily, dropping Goldman Sachs Asset Management from second place to seventh. The fund lost 27% of its assets in the second quarter and ended the year with $29.2 billion.
Bridgewater Associates and Farallon Capital Management came in second and third, respectively, with approximately $36 billion in AUM.
Renaissance Technologies came in fourth place with $34 billion and Och Ziff Capital Management was fifth with $33.2 billion.
Paulson and Company had the biggest growth last year, surging 306% to $29 billion after an early and dead-on bet against the U.S. subprime mortgage sector.
Bank of America Slashes Some Bonuses
The retail brokerage unit of Bank of America announced it will be cutting the salaries of low-producing brokers and raising those of top performers in an effort to chase wealthier clientele, according to Dow Jones.
Under the new compensation plan, brokers who have been with the firm for at least five years but who fall below the $350,000 production level will be paid between 18% and 31% of their annual output. Previously they made 22% to 33 percent.
"Associates meeting and exceeding performance expectations for their role have the opportunity to be more significantly rewarded from our compensation structure," said Matthew Card, a Bank of America spokesman.
Card said 15% of financial advisors' pay comes in the form of a quarterly discretionary bonus for meeting goals in client referral, contact and satisfaction, as well as compliance.
Brokers who fail to meet their quarterly targets will have their pay reduced by 15%, but if they exceed expectations, they could receive bonuses beyond the typical 18% to 31% of their production.
Fed Chief Advocates Principal Writedowns
Federal Reserve Chairman Ben Bernanke said Tuesday that more needs to be done to help troubled homeowners, and suggested a broader effort to write down the principal on some troubled loans.
"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," Bernanke said in a Dow Jones article. "Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done."
Bernanke said a reduction in principal could increase payoff by reducing default risk, but warned that many servicers and lenders may be wary to modify loans that have been securitized or held by investors.
He said it may be in the best interest of investors to embrace such modifications.
"A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default," he said.
If Fannie Mae and Freddie Mac are able to raise more capital, he said they could have a bigger role in dealing with the current problems.
"New capital raising by the GSEs, together with congressional action to strengthen the supervision of these companies, would allow Fannie and Freddie to expand significantly the number of new mortgages that they securitize," Bernanke said.
Europeans Move Wealth to Hedge Funds, Commodities
Europe's richest families are shifting their investments from traditional assets to hedge funds and commodities, according to a new report by Reuters.
Campden Media and Merrill Lynch surveyed 30 European single-family offices in 10 countries and found that alternatives would make up more than half of their portfolios in three years.
The family offices said the current 52% allocation in traditional investments such as stocks, bonds and cash would fall to 45%, while the 48% invested in hedge funds, commodities, private equity and property would rise to 55 percent.
While equities make up 34% of their portfolios currently, in the next three years they could fall to 31 percent. Exposure to hedge funds and funds of hedge funds combined is expected to grow from 14% to 18%, and exposure to commodities is expected to quadruple from 1% to 4 percent.
Federal Watchdog Will Monitor Home Appraisals
As part of a settlement with New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac will establish a home appraisal watchdog organization to help prevent fraud in valuing homes, Reuters reports.
"This is one of the greatest, most dramatic reforms of the housing industry in the last 20 years," Cuomo said. "We believe as a group that this will be a significant and dramatically positive reform."
Cuomo had filed subpoenas against the two mortgage financers to see if they had stood idle as Wall Street bought and bundled home loans at inflated amounts.
Fannie Mae said it will provide $12 million over the next five years to help establish the oversight body, which will operate within the Office of Federal Housing Enterprise Oversight.
Market-Weary Investors Turn to Commodities
As the stock and bond markets continue to take a beating, institutions, individuals and hedge funds have begun pumping dollars into commodity mutual funds and other investment vehicles based on commodities.
"Commodities are often viewed as a hedge against inflation," writes MoneyZine.com, "meaning the prices of commodities tend to rise in step with inflation. This movement trends to run counter to stock prices - which is an attribute that makes commodity mutual funds so attractive to many investors."
Prices on commodities have soared, and many experts are worried that the bubble could burst soon, sending prices tumbling back down.
"As an economist it's hard for me to sit here and look at corn and bean and wheat prices and explain it with fundamentals," Dan Basse, president of AgResource, an agriculture market-research company in Chicago, told The Wall Street Journal Asia. "The market would suggest we're extremely overpriced," he says.
As of early last week, oil prices had reached an all-time high of about $104 a barrel after rising 12% in February. Natural gas prices are up 25%, coal is up 53% and wheat is up 28 percent.
There is a real danger in over-investing, Basse said, noting that commodity index funds hold contracts for approximately one billion bushels of soft red winter wheat, but the U.S. will only produce about half that this year.
"The grain markets are not used to the kind of levels of investment money that are coming in, whether it's from index funds or hedge funds," said Joseph Victor, vice president of market research at Illinois-based commodities research firm Allendale Inc.
Passionate Investors Hunger for Art, Wine
Wealthy wine and art lovers are buying up cases of Bordeaux and Picassos with the hope of offsetting the general market downturn, Reuters reports.
"More and more people are looking at wine as an asset class, discovering it is uncorrelated to bonds and equities, that there are fund managers out there to help them capture those gains," said Andrew della Casa, a director at the Wine Investment Fund.
While wealthy enthusiasts have been filling their wine cellars and covering their walls with these "investments of passion," some analysts say these investments - like all luxury goods - will behave poorly.
There are a few exceptions: Christie's recently sold a case of Chateau Petrus Vintage 1982 for $64,000 and a Francis Bacon triptych for $52 million.
"The art market did not suffer repercussions when the Internet bubble burst and it is doing extremely well today, even after the credit crunch," Robert Tomei, CEO of Italian fund manager Advanced Capital.
But experts caution that no investments are completely immune from a market downturn.
"Investing in fine wine is no panacea," said James Miles, a director at Liv-ex. "You have to go in with your eyes open."
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