Mass. Investigating Failed Bear Stearns Hedge Funds
Massachusetts' securities regulator has joined other regulators in investigating whether executives at Bear Stearns traded at fair prices in the two hedge funds that recently failed, without informing other investors, Reuters reports.
"We are looking at trading in those two funds and whether there might have been conflicts," said Brian McNiff, a spokesman for Massachusetts Secretary of the Commonwealth William Galvin.
Galvin began investigating Bear Stearns research on subprime lenders in March, according to McNiff.
The two funds, Bear Stearns High-Grade Structured Credit Strategies and High-Grade Structured Enhanced Leverage, collapsed after losing $1.6 billion.
California Looking to Register Hedge Funds
California is looking to require hedge funds and private equity firms to register as investment advisors, HedgeWorld.com reports. The California Department of Corporations would achieve this by canceling a rule that has exempted those types of organizations from having to register.
California would also require out-of-state hedge funds and private equity firms that have more than six clients in the state to register. However, California is defining a client as a fund.
All venture capital firms would continue to be exempt.
California said it agreed with the Securities and Exchange Commission's hedge fund registration rule that the SEC passed in 2004 but that a hedge fund manager successfully overturned through a lawsuit.
Fidelity Combines Critical RIA Functions on Platform
Fidelity Investments will be launching a new Web-based platform for registered investment advisers. Called WealthCentral, it is designed to combine the various functions and tools that RIAs need, including financial planning, portfolio management and customer relationship management.
Supporting the platform in the back office is Advent Software's portfolio exchange software. Oracle is providing a CRM solution.
"Today, advisers must buy their various technology applications in a piecemeal fashion and then try and make the systems work together as best they can, something that can be costly and extremely inefficient," said John W. "Jack" Callahan, president of Fidelity Institutional Wealth Services.
"That's why Fidelity is investing $50 million in developing what we believe will be the strongest and most integrated platform in the industry, helping address this critical market need," Callahan said.
According to Fidelity research, two-thirds of RIAs view a single platform as valuable and half see it as very valuable. WealthCentral will be available late next year.
Vanguard, Bear Among Six Planning Active ETFs
There's been talk of actively managed exchange-traded funds for nearly 10 years now, and six companies have either submitted filings or requests for regulatory relief with the Securities and Exchange Commission to offer such funds, Pensions & Investments reports.
Vanguard and Bear Stearns have submitted the filings, while Firsthand Capital Management, Managed ETFs, Alpha Equity Research and XShares have submitted the relief papers.
Transparency has long been the stumbling block for ETFs, as investment advisors have feared that revealing holdings would enable front running. Firsthand claims it can get around that problem by completing trades in a single day. That, said Firsthand Marketing Consultant Phil Mosakowski, won't be a problem for liquid stocks. However, less liquid stocks could pose a problem, he admitted.
Vanguard believes it can get around the transparency issue by only providing a sampling of 50% to 75% of its bond holdings represented by similar securities with the same maturities, credit quality and yield.
T. Rowe Price Adding 1,400 Staff at New Campus
As a result of expanding business, T. Rowe Price will build two new offices totaling 40,000 square feet adjacent to its existing campus in Owings Millis, Md., to accommodate 1,400 additional workers. They will be built on a 38-acre site T. Rowe acquired.
Construction will begin before winter, with the buildings scheduled to open in the second half of 2009.
"This plan reflects the ongoing growth in our business, as well as our goals of continuing to provide our clients with world-class services and our associates with high-quality facilities," said T. Rowe Chairman Brian C. Rogers.
T. Rowe Price currently employs 5,000 and has $379.8 billion in assets under management.
75% of Hedge Fund Execs Dissatisfied With Salary
For all of the talk about tremendous salaries for hedge fund managers and executives, they earn an average of $250,000 a year, and only 3% earn more than $1 million a year or more. Managers earn an average of $364,566 a year, and analysts earn $205,381.
But 75% are dissatisfied with that level of compensation, Dow Jones reports, citing a Hedge Fund Search Digest survey of 232 executives from 200 hedge fund firms.
Evidently, greed is good, but greedier is better. When hedge fund executives hear about peers earning hundreds of millions of dollars a year, that leads to jealousy, said David Kochanek, president of the Digest.
"Even when you're getting paid three-quarters of a million or a million a year, there's still that, What's possible? If I make the move, am I able to double what I'm making today?'" Kochanek said. As a result, there is high turnover at hedge funds, he added.
FINRA Funds Research For Disclosure Benefits
The FINRA Investors Education Foundation has granted $432,850 to the National Bureau of Economic Research to examine whether disclosure can help investors better evaluate risks and fees.
Called "Managing Risk and Minimizing Fees," the research, through three individual studies, will examine how to help investors better examine risk, particularly in the context of their overall portfolio and time horizon, and how fees impact investment returns.
Harvard University Economics Professor David Laibson said, "This research extends beyond the limitations of a simulated, laboratory environment by increasing the monetary stakes and investing real-world assets over the course of one year. This format should more accurately reflect the large-stakes choices made by investors in the real world."
To date, the FINRA Foundation has approved $10.4 million in grants and $10.2 million in direct investor education programming.
Hedge Funds Bracing for Downward Push on Fees
In a poll of 100 hedge funds and hedge funds-of-funds with $900 billion in assets under management, Ernst & Young found that 80% expect incentive fees to go down within two years, and 72% expect management fees to decrease. At the same time, the hedge funds expect operational costs to increase.
"With such vast amounts of assets under management, the capacity of many funds is under stress, and the ability to trade in the marketplace, with a minimum market footprint, becomes harder and harder," according to the report. "In light of this, managers have had to rethink their infrastructure and operations in order to cope with these pressures, not simply to ensure scalability, but more importantly, to minimize any drag on performance."
As far as regulation is concerned, hedge funds are worried about scrutiny of how their holdings are valued, particularly since a number of hedge funds recently weren't able to honor redemptions or properly calculate net asset values.
Standard & Poor's Debuts Select Frontier Index
Standard & Poor's has launched the S&P Select Frontier Index, which will invest in 30 of the largest and most liquid companies in frontier markets, including emerging Europe, Asia, South America and the Middle East. It is a subset of the S&P Extended Frontier 150 Index.
At its launch, the S&P Select Frontier Index includes companies from Bulgaria, Cambodia, Columbia, Jordan, Kazakhstan, Pakistan, Panama, United Arab Emirates and Vietnam.
Frontier markets are attracting investors' attention because they have the ability to deliver stronger returns than in developed nations, said Alka Banerjee, vice president of S&P's index services.
"Liquidity has increased tremendously in frontier markets since 2001, as restrictions on foreign investment have been relaxed and returns have outpaced both developed and emerging markets over the last decade," Banerjee said. "Less correlated to global economic cycles than their more developed counterparts, the combination of accelerating economic growth, increased government focus on privatizations and heightened IPO activity provides an attractive investment environment for those seeking alpha and diversification benefits."
AARP Launches 401(k) Automatic Enrollment Push
Senior citizen advocacy group AARP is launching a national campaign to meet face-to-face with business leaders, civic groups and companies to convince more employers to automatically enroll their workers in 401(k) plans.
As of 2005, only 17% of 401(k) plans offered automatic enrollment, according to an AARP study of 794 large U.S. employers.
With people living longer, healthcare costs increasing and fewer companies offering traditional pension plans, AARP says individual savings like the 401(k) will be essential to avoid a retirement crisis.
"We're still people whose parents and grandparents had traditional pensions," said Jean Chatzky, financial expert and editor for NBC's "Today" show. "We've got a generation of people that we really have to get up to speed."
AARP officials say many younger workers assume their retirement plan will include regular pension checks when they should be saving or investing part of each paycheck.
According to a study by consulting firm Towers Perrin, only three in 10 workers participate in a 401(k), and of those who do, many don't contribute enough to receive matching contributions from their employers.
AARP's campaign will focus on convincing small- and medium-size employers to boost 401(k) participation by 10% in each of the next three years.
Nearly 40% of Gen X, Y Expect to Retire Young
Many young adults between the ages of 25 and 34 have unrealistic expectations about retirement, according to a report from Edward Jones. Thirty-nine percent expect to be able to retire before the age of 60, yet 31% admit that saving for retirement is difficult, with 24% saying that low salaries are the reason.
Fifty-three percent said they'll cope with pressures in retirement by cutting back on shopping, and another 45% said they simply won't spend as much on home investments and repairs.
Clif Helbert, a principal with Edward Jones who specializes in retirement planning, said, "Saving for retirement is an obvious disconnect for the younger generations."
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