Fund performance

WASHINGTON - As regulatory burdens increase, mutual fund boards of directors' attention to the real business at hand-sound asset management and fiduciary responsibility to the end investor-is conversely being depleted, industry heavyweights attested, speaking at the Investment Company Institute's 50th Annual General Membership Meeting here last Thursday.

The harder the hedge fund managers’ fall - the more money they lose, the bigger the fat cats - the easier it is for them to raise additional seed capital for another hedge fund idea. So reports The Wall Street Journal this morning in “Rebounds by Hedge-Fund Stars Prove ‘It’s a Mulligan Industry.’”

WASHINGTON - The credit crisis is 75% to 85% unwound in terms of the financial markets, but the economy may still be on shaky ground, Jamie Dimon, chairman and CEO of JPMorgan Chase told the 1,500 delegates assembled here for the Investment Company Institute’s 50th GMM.“I would say this thing has largely already worked its way through. It probably won’t get worse at this point. Increased capital requirements will take about six months longer” to bring markets and counter-party risk tolerance back to normalcy, Dimon said.However, he was quick to add: “The recession, I don’t know. To paraphrase Yogi Berra, it’s tough to make predictions, especially about the future.”Markets perform in cycles, Dimon reminded executives, listing the 2001 technology bubble, Long Term Capital Management’s overleveraged exposure to Russia in 1997, the real estate and savings and loan crisis of 1990, overvalued earnings in 1987 and the subsequent stock market crash, the recession of 1982 and the oil shortages in 1974.
“The difference in this one is it’s a housing crisis,” said Dimon, who included among those to blame for the subprime crisis those mortgage bankers who failed to properly verify borrowers’ income or appraisers’ real estate assessments.Dimon also praised the government for its swift action in bailing out Bear Stearns and a cadre of more than 1,000 investment bankers at his own firm who, after he got “the Thursday telephone call” about whether or not to purchase the ailing firm, spent the entire weekend performing due diligence on the deal.In answer to a question from an audience member, Dimon exhorted mutual fund executives to continue to bring innovative products to market but to be extremely cautious when doing so.As an example, Dimon said, collateralized debt obligations, CDO warehouses and structured investment vehicles that invested in subprime mortgages are so complex that to try to assess the price in one such instrument, JPMorgan ran a Monte Carlo simulation on one of its mainframe computers for seven hours.Questionable mark-to-market policies also factored into the subprime troubles, he added. But that said, Dimon said he is tired of being “vilified” by the media for bailing out Bear Stearns or operating a bank that itself sold subprime mortgages and products derived from them. And as to banks’ role in making credit and loans too available to the American public, Dimon stressed that the consumers of subprime CDOs and other structured products over the past two years, have largely been institutional and not retail investors.The ICI booked Dimon’s appearance many months ahead of JPMorgan’s recent preeminent role in partnering with the government on the Bear Stearns deal, noted Edward Bernard, chairman of the ICI’s General Membership Meeting Planning Committee, and vice chairman of T. Rowe Price Group.“We thank Mr. Dimon for honoring his commitment” at this exceptionally busy time, Bernard said.

WASHINGTON - Regulators, employers and the financial services industry must work together to expand the use of 401(k) plans and increase worker participation, the Investment Company Institute's President and CEO Paul Schott Stevens said Wednesday at the institute's 50th annual general membership meeting.

Legg Mason, citing $206 million in charges tied to supporting money market funds with subprime and other illiquid fixed-income exposure, posted a net loss of $256 million in the first quarter, down from profits of $173 million in the year-ago period.

Seeking to leverage its strengths in mutual fund processing, Depository Trust & Clearing Corp. (DTCC) is readying a service that automates pre- and post-trade processes for the alternative funds market. The service is expected to launch next year, pending regulatory approval.

Asian investors fearing an extended bear market are moving their money out of riskier investments and into conservative safe havens. The mutual fund industry is responding to this shift by offering jittery investors alternative, more conservative products.

BOSTON - Retirement income planners, along with mutual and insurance fund executives, are wracking their brains to come up with new products that are low cost, easy to use and easy to sell.

Dreyfus Corp., a dominant force in money market funds as well as the high-net-worth market through its parent company, Mellon, will become a leader in long-term mutual funds and other investments, if its new chief executive, Jon Baum, meets his goal.

We are proud to announce this year's Money Management Executive's 6th Annual Fund Operations Awards program. The awards, for Leadership, Innovation, New Media and Innovations/Efficiencies, will be presented in person in September, in Boston. Deadline for entries is July 18, 2008. Detailed entry forms will be available on the newsweekly's home page. We look forward to hearing from entrants as well as those interested in serving on the judging panel. For more information: elizabeth.barney@sourcemedia.com. -- Thank you, Lee Barney, Editor.

While flows to money market mutual funds increased at an alarming rate in the first quarter of the year (see MME “Money Funds Seeing Huge Inflows, Opportunities,” this week’s issue), assets fell by $34.53 billion in the week ended Tuesday, according to data from iMoneyNet’s Money Fund Report.

The Hartford suffered a serious 83% drop in net income due, the firm announced yesterday, to poor investments.

While Warren Buffet continues to buy up and broker M&A deals, making financial news headlines left and right, a fund that mimics his preternatural talent for picking winning stocks, bonds and private equity opportunities—and run by Buffet’s former stockbroker Bill Ruane—has reopened.

WASHINGTON - The Office of the Comptroller of the Currency's $144 million enforcement order against Wachovia Corp. is likely to force banks to step up oversight of telemarketing customers.

Many investors are gasping at the first-quarter losses on their financial statements and wondering whether they should change their asset allocation to a more conservative plan.

Hedge Fund Investments Drop in First Quarter

A flood of retail and institutional investors have hit the sidelines and settled comfortably into money market funds in light of the equity market roller coaster and credit market stumble.

Jim Goff is a rare portfolio manager and research director who sticks to his guns no matter how erratic or rewarding the market. In fact, he has stuck, for 20 years now, with a fund complex that has just about seen it all.

WASHINGTON — Initial claims for U.S. state unemployment benefits plunged 33,000 to 342,000 in the April 19 survey week, the Labor Department reported yesterday, but a Labor analyst cited “no special factors.”

WASHINGTON—Treasury Secretary Henry Paulson met in private with top lenders and servicers this week to warn them the housing market is continuing to deteriorate and press them for a new solution, several sources said Thursday.