SEC Permits Companies to Bar Ballot Nominations
At its open meeting on Wednesday, the Securities and Exchange Commission decided to continue allowing companies to bar shareholders from nominating directors on company ballots, although investors may continue to nominate directors or seek to change company bylaws by waging costly proxy campaigns on their own.
The three Republican commissioners voted in favor of the proposal, and the lone Democrat, Annette Nazareth, voted against it.
The SEC came out with two proxy proposals in July after a federal appeals court said the Commission cannot continue to allow corporations to exclude shareholders' proposals on proxies and must review the issue. A second proposal would have paved the way for shareholders to include proposals on company ballots, but only if they have the backing of shareholders who own at least 5% of a company's stock for a year or longer.
BoA's ATMs to Run Retirement Planning Ads
Bank of America will begin promoting its retirement products and services on its automatic teller machines in January, expanding on its print and Internet advertising campaign launched earlier this month.
BoA has the largest ATM network in the nation, consisting of 18,633 machines, but only about 10,000 of BoA's ATMs will carry the ads in five markets: Boston, Chicago, Los Angeles, New York and San Francisco.
Industry experts say banks are behind asset management firms in retirement savings, but they are optimistic they can catch up.
Bank of New York Mellon To Establish JV in China
The Bank of New York Mellon has entered into an agreement with Western Securities of China to establish an asset management joint venture, of which BNY Mellon will own 49%.
Initially, the firm, which will be called BNY Mellon Western Fund Management and headquartered in Shanghai, will invest in domestic stocks but then diversify into international holdings.
"Accelerating the already significant growth of The Bank of New York Mellon's business outside of the U.S. is our key strategic priority," said BNY Mellon Asset Management President Ronald O'Hanley. "China offers our company and our clients huge growth potential, and we are delighted to further our presence there with the formation of this joint venture. This is an exciting opportunity for our company in such an important region."
Western Securities Chairman Liu Jianwu added: "As the Chinese financial environment continues to expand and evolve, the opportunities to develop international partnerships significantly increase. We are delighted to join forces with The Bank of New York Mellon, which has considerable experience in the international asset management industry."
Citibank, BlackRock Launch 11 Funds in China
Citibank has launched 11 new mutual funds in China, in partnership with BlackRock Merrill Lynch, including one called the Merrill Lynch International Investment Funds Series that will give Chinese investors exposure to international investments, as permitted under the QDII program. To date, Citibank is offering the largest number of international mutual funds in China.
"After becoming the first bank in China to offer direct, open-end offshore mutual funds under the QDII scheme in August, today's launch is another example of Citibank's commitment to provide varied and innovative product selections to our Chinese customers," said Anand Selva, executive vice president in the consumer group at Citibank (China). "We have chosen to partner with one of the world's largest asset management companies, BlackRock, to bring 11 specially selected fund offerings to the China market."
Portus Manager Pleads Guilty, Gets Two Years
In a surprise twist in the trial of Michael Mendelson, one of the two managers of the collapsed Canadian hedge fund Portus Alternative Asset Management, he reached a plea agreement by pleading guilty and testifying against his former partner, Boaz Manor, the Edmonton Journal reports. Still, Mendelson was sentenced to two years in prison.
Mendelson apologized for defrauding 26,000 investors of $761 million, saying to Ontario Court of Justice Judge Robert Bigelow, "I want to say, your honor, to anyone negatively impacted by the creation of Portus that I deeply apologize."
Bigelow evidently took some pity on Mendelson, noting that he had received numerous character letters on his behalf. The judge said the former hedge fund manager "has clearly accepted responsibility for what has occurred. The likelihood that [Mendelson] will be before the courts again is almost nil," the judge said.
The investors will get approximately 96% of their money back. Mendelson pocketed nearly $23 million from the fund, $17 million of it in cash and diamonds that have not been found.
Emerging Markets Begin To Show Signs of Strain
The mortgage fallout in the U.S. is beginning to take its toll on international markets, including the emerging markets that have delivered such stellar returns of late, Barron's Online reports. That's because investors are moving away from any investment they perceive as carrying risk.
The iShares MSCI Emerging Markets ETF was up nearly 50% year-to-date through October, versus a mere 6% for the S&P 500. But over the past few weeks, the fund has underperformed the S&P 500.
A comparison to a BRIC ETF shows that Brazil, Russia, India and China have delivered even stronger returns, with the Claymore BNY BRIC ETF up more than 80% year-to-date through October. But many note that Brazil has held up that sector, and gains there could soon give way if the correction many are predicting becomes a reality.
Money Fund Founder Blasts Peers for Subprime
Bruce Bent, who came out with the first money market fund in 1970, thinks money market funds that invested in subprime-linked collateralized debt obligations and other risky instruments have been negligent in their duties to investors, Reuters reports.
"The people who have been managing many of these funds are not money fund managers, not cash managers," Bent said. "They are asset managers of different classes of assets, and they have imposed the psychology of managing stocks and bonds on money funds, and they are wrong."
Bent said that when he created the money market fund, "the whole concept of this thing was safety of principal, liquidity, a reasonable rate of return, and the most overriding concept was, you don't have to worry about money funds."
Overlay Portfolio Programs Future of SMAs: MMI
Model, or overlay, portfolio programs, in which an asset manager hands over their investment process to a third-party manager or major distributor, such as a brokerage firm or bank, so that they are no longer running money, offers advantages to both investors and asset managers, according to the Money Management Institute.
They enable investors to be served by sophisticated research from a number of asset managers in a single account and free the money managers up from serving clients to concentrating on their investment strategies, according to MMI.
As this removes the relationship between the investor and the money manager-and their direct receipt of fees-at first, some managers may not embrace this model, said MMI President Christopher L. Davis. "However, the data suggests there are broad advantages for the investors, and, ultimately, that is what is going to drive the market," Davis said.
The number of asset managers participating in model portfolio programs has more than doubled in the last four years from 90 in 2003 to 214 today, representing 25% of the total universe of separately managed account managers. And as of the second quarter of this year, overlay programs represented 61.5%, or $78.4 billion, of total unified managed account assets.
Based upon the projections of sponsor firms, overlay management will reach nearly half, or 48.8%, of the total SMA market within five years.
Four Fidelity Funds Hit With Huge Redemptions
Fidelity Investments manages four of the nation's 10 mutual funds to be hit with the largest redemptions year-to-date through October, Bloomberg reports.
The Fidelity Growth & Income Fund has lost $10.2 billion, Fidelity Magellan is down $7 billion, and investors have taken a combined $8.8 billion from the Fidelity Blue Chip Growth and Fidelity Low-Priced Stock funds.
The redemptions are somewhat of a surprise, given the fact that 86% of Fidelity's actively managed funds have outperformed their benchmarks in the first 10 months of this year, up dramatically from 17% for the comparable period last year.
Target-Date Funds Customize Risk Thresholds
While target-date funds adjust a portfolio's level of risk as an investor gets closer to their target retirement date, they fail to address the various risk tolerances of different investors. Thus, fund companies have begun working on offering tailored target-date funds to 401(k) plan sponsors, The Wall Street Journal reports.
For instance, a 2020 target-date fund may come in three versions: conservative, moderate and aggressive.
But some aren't so sure that investors will understand or cotton to these offerings. "All this terminology-conservative, moderate, aggressive-none of this means anything to people who are not familiar with investing," said Zvi Bodie, a professor at Boston University School of Management.
Through September, assets in target-date funds have risen 46% to $169 billion.
Housing, Credit Markets to Slow GDP Growth to 1.5%
Gross domestic product in the United States will advance by a mere 1.5% in the final quarter of the year, according to a survey of economists by the National Association for Business Economics.
In September, the association had pegged GDP growth at 2.5%. It was 3.9% in the second quarter. For all of 2007, NABE projects GDP growth of 2.1%, the weakest rate since 2002, when GDP growth was 1.6%, and for 2008, the association expects a GDP growth rate of 2.8%.
Sixty percent believe the risk of a recession in 2008 is 30%, and 20% believe the risk is 50% or higher. Spillovers from housing weakness to broader consumer spending, along with credit-market tightening, are seen as the most likely recession triggers because they could cause consumers to cut back on spending, according to the report.
Ellen Hughes-Cromwick, NABE president, said: "While the U.S. economy faces a higher risk of recession from credit markets, housing and energy prices, NABE's panelists do not see recession as the likely outcome [but] growth gradually picking up from the sluggish pace projected for this quarter even without further easing by the Federal Reserve."
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