Conn. May Reintroduce Hedge Fund Bills
Because neither Congress nor the Securities and Exchange Commission require hedge funds to register or reveal key information, Connecticut General Assembly Sen. Robert Duff (D-Norwalk), vows to reintroduce as many as three bills that would require them to reveal conflicts of interest, be licensed and disclose financial information to prospective investors.
Last May, the main bill, "No. 953, An Act Concerning Hedge Funds," passed the Connecticut Senate by a vote of 24 to 12 along partisan lines but died in the House. Likewise, a bill introduced in the U.S. Senate by Sen. Christopher Dodd (D-CT), also stalled.
Duff, chairman of Connecticut's banking committee and an advocate of hedge fund regulation for the past four years, says the inaction in Washington behooves the state legislature to revisit the issue. This time, however, Duff vows to expand the bill beyond disclosure of conflicts of interest between a manager and an investor to include further information on investment strategies and fees. "I've had a lot of people inside the industry tell me that I was right on with this bill," Duff said. "Even in their opinion, we could go further."
Indeed, Connecticut Attorney General Richard Blumenthal has long called for further hedge fund oversight, saying the funds exist in "a regulatory black hole. Non-binding best practices or voluntary guidelines are an imaginary fence-and virtual farce: They stop nothing," Blumenthal said. "The Treasury Department is suggesting faux regulation, creating a dangerous illusion of oversight and engendering a false sense of security. Federal officials are proposing a speed limit, but making compliance voluntary: Some will fail to comply, imperiling all."
The Connecticut Hedge Fund Association maintains the proposed bills would duplicate federal securities law as well as information already available in prospectuses.
Fidelity Creates iPhone Brokerage Trading App
Fidelity Investments has introduced a brokerage trading application complete with real-time news and quotes, interactive charting and watch lists for the iPhone and iPod Touch. The program lets users trade stocks, options, exchange-traded funds and mutual funds.
"At Fidelity, we recognize the growing popularity of the iPhone and iPod Touch, and, in fact, nearly half of the customers using our current mobile trading application, Fidelity Mobile, log in from an iPhone," said James C. Burton, president of Fidelity's retail brokerage business. "Our new app takes full advantage of the revolutionary technologies of iPhone and iPod Touch to allow us to deliver powerful trading and account management services in a very user-friendly format."
Fidelity is rolling out the new technology in conjunction with its recently announced $7.95 online trades and free trades for 25 iShares exchange-traded funds.
Citi Offers Middle-Office Software With Heat Maps
Citigroup has introduced CitiDirect Performance and Risk Management Service, a risk-reporting middle-office application that uses heat-mapping visualization technology. It permits asset managers to aggregate multiple, manually generated reports into a single-information view.
"CitiDirect PRISM demonstrates our ongoing commitment to market innovative and leading-edge technology for the benefit of our clients," said Neeraj Sahai, global head of securities and fund services at Citi. "The heat-mapping technology tool enables a fund's executives and asset owners to view performance and risk exposure in an intuitive manner that aids in their investment and risk-management processes."
The tool is designed specifically for chief investment officers, portfolio managers, risk managers and product distribution teams to let them readily see complex data relationships across performance, attribution, investment operations and sales.
AllWeather Indexes Aim to Minimize Downside Risk
F-Squared Investments has created the AlphaSector AllWeather Indexes, which aim to serve as a new tool for retirement income and pension plan sponsor funding requirements by concentrating on minimizing downside risk. F-Squared is offering separately managed accounts tracking them, and is currently exploring other product options with several providers.
"The average investor has been through a long period of minimal asset growth," said Ron Santangelo, managing director of Santangelo Investment Management and Research, and manager of the fixed income and alternative components of the new indexes.
"In the last 15 years, we have had periods of attractive gains completely eliminated by market reversals," Santangelo continued. "The goal of the AllWeather Indexes is downside risk mitigation; it's not how much investors make on the upside, it's what you keep on the downside that is crucial to long-term asset growth."
F-Squared claims the new indexes hold great promise, since its flagship AlphaSector Premium Index gained 198% over the last nine years, whereas the S&P 500 rose 14%. Investment portfolios for retirees that tracked the AlphaSector index during that time were able to permit 8% annual withdrawal fees, double financial advisers' recommended 4% annual withdrawal rates, said Howard Present, president and CEO of F-Squared Investments.
The new offerings are also an outgrowth of F-Squared's new AllWeather Advisory Board, a diverse group of industry professionals who will work to improve state-of-the-art retirement income solutions.
ETFs Gaining Traction Among Wealthy Investors
Exchange-traded funds, once the province only of institutional investors, are increasingly resonating with wealthy investors. A recent Cogent Research survey showed that 11% of wealthy investors now own an ETF, up from 9% a year ago. In addition, younger and wealthier investors tend to gravitate to ETFs more than other investors, and investors favor low-cost and leveraged ETFs.
Legg Mason Planning Actively Managed ETFs
Legg Mason has begun the process of filing with the SEC to offer actively managed exchange-traded funds but has not yet decided what strategy the first offering will take. However, Legg Mason is looking at both fixed income and equity strategies. Assets in ETFs have grown 10 times over in the past decade, whereas mutual fund assets have doubled in that time, according to the Investment Company Institute. Last year, ETF assets rose 46% to $777.1 billion, yet investors withdrew $8.8 billion from stock mutual funds and in 2008, a record $233.8 billion.
Citi in Talks to Sell Hedge Unit to SkyBridge
Citigroup is reportedly looking to sell a hedge fund unit with $4 billion in assets under management to SkyBridge Capital. Last year, Citi decided to sell $715 billion in non-core assets.
Consumers Can't Shake Frugality: Booz Survey
A "new frugality," born of two consecutive years of declining consumption, is becoming entrenched consumer behavior that must reshape financial services marketing, a Booz & Co. survey of 2,000 U.S. consumers shows. Americans will continue to focus on saving, avoiding risk, finding values and being more cautious and discerning consumers. A scant 9% expect to spend at pre-recession levels on household products over the next 12 months. Moreover, 65% now consider saving to be more important than spending. "Frugal behavior is now considered trendy by many shoppers and will continue for years to come," said Matt Egol, a partner with Booz.
Variable Annuities Face Sober New Reality: Cerulli
Insurers that kicked off the new decade with scaled-back variable annuities focused on principal protection and insured retirement income should stick with that approach, no matter how much the market improves, according to a report by Cerulli Associates Analyst Lisa Plotnick, who expects "a new era of stabilization and rationalization."
In short, insurers simply can't afford to slip back into bad habits, aggressively pricing each other out of the market with increasingly elaborate riders, a strategy that failed them as it didn't attract substantial new assets, Plotnick said.
Carriers sold $14.1 billion of net variable annuity sales in the first three quarters of 2009. For all of 2008, that total was $23.1 billion. But five years ago, net sales totaled $40 billion.
Also, comprehensive living benefits don't seem to slow 1035 exchanges, and there is no significant difference in sales between annuities offering a 5% and 6% withdrawal rate, she said.
In order to maintain the long-term stability needed to back annuities' promises, insurers should generally stick to four to six products and fewer than 80 sub-accounts. Insurers need the new asset flow because without it, they are at risk of getting hit doubly hard by all the money being withdrawn as Baby Boomer policyholders reach retirement.
Thus, insurers need to focus on a decidedly unsexy marketing proposition, which is necessary for the health of an industry that doesn't yet have the data it needs to manage for guaranteed lifetime withdrawal risk. If Baby Boomer withdrawals are going to take a chunk out of insurers' assets, consider those policyholders who wait a few years longer into their retirement and then start pulling out the larger amounts they're entitled to.
To build and price new products, insurers have to look at risk in a more averse manner than they have in the past, when averages ruled the day, she said. Now, insurers will have to run many more models and "run to the tail," which basically means figuring out the least likely, most expensive risk and pricing that into the product.
What this means is more back-to-basics variable annuities that cost a lot more than they used to.
"You can't go back to what something would cost five years ago, when the climate was very different," Plotnick said. Rather, advisers have focus not on flashy promises of higher returns, but on financial stability.
For their part, insurers must furnish their wholesalers with persuasive reasons why a scaled-back product can compete with a riskier but more flamboyant product offered by a competitor. The basic pitch, Plotnick said, is that "VAs can no longer be seen as tax-advantaged investment products, but instead as products that guarantee income in retirement. Product one-upmanship won't get the industry where it needs to go."
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