Week In Review

Fidelity, Franklin, Legg Mason Suffer Largest Redemptions in 2008

Fidelity Investments, Franklin Resources and Legg Mason were hit with the biggest redemptions in 2008, losing $40 billion, $21.5 billion and $21 billion, respectively. Collectively, the three companies suffered 43% of the $194 billion in total withdrawal requests during the year.

In all of 2008, U.S. and international stock funds lost $189.2 billion in assets due to withdrawals, and diversified funds had $29.7 billion in withdrawals. But bond funds took in a net $20.7 billion, and alternative funds, $4.1 billion.

The picture doesn't appear to be that much brighter for 2009. "We expect flows into retail equity products to remain challenging into 2009," said Robert Lee, an analyst with Keefe, Bruyette & Woods. While the outlook for equity funds isn't bright, Lee said, fixed income funds might continue to attract assets, however.

With fewer assets on hand, fund company fees have declined, and the industry has already shed an estimated 4,800 jobs.

Hedge Funds Lose 20% Of Assets to Redemptions

Investors withdrew $399 billion from hedge funds, or about 20% of assets, in 2008, according to data from Hennessee Group. On top of an average 18.3% market decline, or $382 billion in investment losses, the total $781 billion hit that hedge funds took was severe.

At the start of the year, the hedge fund industry had an estimated $2 trillion in assets. That is now depleted to $1.2 trillion.

Charles Gradante, co-founder of Hennessee, told Dow Jones that the redemptions would probably have been worse, had not so many hedge funds frozen redemptions. That being the case, investors are likely to increase the number of lawsuits against hedge funds this year.

Most Executives Foresee Recession Through 2011

In an online survey of 1,445 finance executives, Deloitte found that 58.4% expect the recession could last until 2011. Yet two-thirds are not in support of any additional bailouts beyond what has been done to prop up the finance and automotive industries.

But Deloitte Chief Economist Carl Steidtmann thinks the survey respondents are too pessimistic, given the extraordinary actions the government has taken. "Given the dollar amount of stimulus funds currently being pumped into the banking system," Steidtmann said, "we are more likely to experience a faster recovery than the survey results suggest. [It] could come as soon as late 2009."

Investor Confidence Index Rises 12 Percentage Points

State Street Global Markets' Global Investor Confidence Index rose from 48.2 to 60.3 in January.

Regionally, the increase was the strongest in North America, where the figure climbed 21 percentage points from 30.6 to 51.8. The increase was nearly seven percentage points in Europe, where the figure went from 66.3 to 73. It remained largely stagnant in Asia, falling minimally from 86.6 to 86.3.

Based on the buying and selling patterns of institutional investors, the index is based on their equity risk appetite.

"The move up in Global Investor Confidence this month is the largest we have seen since August 2007," said Harvard University Professor Ken Frott, who developed the index with State Street. "This is perhaps not surprising, with the index having registered a record low in December. [However,] it remains to be seen whether these reallocations represent changes in long-term convictions about the value of those assets.

"It may be true that institutional investors perceive that the risk of systemic collapse has abated somewhat in the wake of recent policy actions," Frott continued.

401(k) Assets Shift To Stable-Value Funds

A small, but growing number of 401(k) investors, burned by steep negative returns in 2008, are moving assets into such capital preservation funds as stable-value and money market funds, Mercer Consulting reported.

Assets in such funds grew 70% in 2008, evidently moving directly out of equity mutual funds, whose assets in 401(k) plans shrank by 70%.

"Overall, we believe that plan sponsors should be heartened by the fact that most of their participants are treating their 401(k) accounts as long-term investments and staying the course," said Eric Levy, retirement business leader at Mercer. "It is certainly understandable why some participants would move to some capital preservation funds, given the recent economic upheaval. In all likelihood, this will continue until the macroeconomic outlook improves."

On top of this, an increasing number of investors are seeking withdrawals from their 401(k)s in the form of either hardship withdrawals or loans. Such withdrawals rose 59% in November and December. In addition, since July, the number of people who have dialed back their contribution rates to zero has also increased.

That said, the number of people taking these drastic measures is still small, Mercer noted, without releasing the absolute figures. Mercer based its report on the actions of the 1.2 million participants in the 401(k) plans it administers.

Gross Believes Banks Are Largely Out of the Woods

Banks may have seen the worst of the financial crisis, but the economy will slog through more difficult times. That was the assessment that PIMCO Manager Bill Gross recently gave to Reuters.

Gross is concerned, however, that banks are not yet readily loaning money, and housing prices still continue to fall. "We have probably seen the worst of the credit crisis from the standpoint of the banking balance sheets, to the extent that they've already received a lot of capital and are going to get some more," Gross said.

However, Gross was not so sanguine about corporate bonds. "We haven't seen the worst of it from the standpoint of defaults," Gross continued, "in terms of the high-yield market and small corporations, layoffs in terms of individuals, higher unemployment rates. The worst is ahead for the real economy."

Most Americans Deeply Worried About Retirement

Eighty-three percent of Americans are concerned about the effects today's economic conditions could have on their ability to retire, with seven in 10 saying it is harder to retire today than it used to be, according to a survey commissioned by the National Institute on Retirement Security.

When asked what a secure retirement meant to them, nearly half described it as simply having enough money to pay their bills and meet the most basic of needs.

More than half of respondents said the current retirement system is worse than the previous system in which more workers could receive pensions. The vast majority of Americans (87%) believes that all workers should have a pension in order to be self-reliant during retirement, with 55% of those without a pension saying having one would do leaps and bounds to ease their anxiety.

Of those who do have pensions, 65% are confident it will be there during retirement; only half of those with 401(k)-type plans believe they will have enough money to retire on.

Government is partially responsible for retirement security along with individuals and employers, according to 85% of respondents. Respondents said strengthening Social Security is the most important step Congress can take in its efforts to improve retirement security, followed by tax incentives that would aid individual saving and employers' offering of retirement plans.

In fact, 84% believe government should make it easier for employers to offer pensions in this environment, while nearly 80% would like to see a government-sponsored pension plan that small employers and individuals could join. Nearly 90% think it's a good idea to provide tax incentives to encourage small employers to band together to offer pensions.

Morgan Stanley Reopens $1.4B Infrastructure Fund

Morgan Stanley Investment Management has reopened the $1.4 billion Morgan Stanley Global Infrastructure Fund to new U.S. investors. Later in the year, Morgan Stanley plans to make a similar strategy available to international investors.

"We expect the massive investment in infrastructure resulting from urbanization, aging infrastructure in developed countries and demand for new infrastructure in developing countries, will continue to create significant investment opportunities in companies around the world that build, operate, own or provide services to infrastructure assets," said Michael Noland, managing director and lead portfolio manager of the fund.

Certainly in the U.S., President Barack Obama has made it a point to make infrastructure one of his priorities, Noland noted. The same is true abroad, he said. "To stimulate their economies, governments in countries around the world such as Brazil, China, Germany, the United Kingdom, South Korea and Australia are accelerating implementation of infrastructure projects."

Janus Income Falls 85% in4Q to $7.8M from $51.6M

Janus reported fourth-quarter net income of $7.8 million, down 85% from $51.6 million net income in the fourth quarter of 2007. For the full year, net income was $138.4 million, down 28% from $192 in 2007.

Assets during the entire year fell 40% from $206.7 billion at the start to $123.5 billion by Dec. 31. Janus attributed most of the decline in assets, $77.6 billion, or approximately 93% of the $83.2 billion total, to market depreciation. The remaining $5.6 billion was net redemptions throughout the year.

Relatively speaking, Janus emphasized that its funds largely outperformed their peers; 55%, 79% and 83% of the firm's funds were in the top half of their Lipper categories for the past one, three and five years. Intech funds also did well, with 83% outperforming their benchmarks over the past year, 56% over the past three years, and 100% over both the past five and 10 years.

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