Fund Management Account - Education, Investment Company, Market news

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ridodirected@gmail.com (RIDO) — Sat, 10 May 2014 01:02:00 +0000

Fund management

Like books and music, the investment industry is being squeezed

Posted on May 3rd 2014
Article from http://www.economist.com/

SOME of the greatest fortunes in the modern world have been accrued by those who look after other people’s money. Hedge-fund and private-equity managers have become billionaires thanks to their ability to claim a chunk of their funds’ annual return. The irony is that many of these fortunes have been built at a time when investors no longer have to pay high fees to earn the market return for equities or government bonds. “Tracker”, or “passive”, funds do not try to beat the market. They just replicate the components of an asset class, and their fees amount to only a few “basis points”, as a hundredth of a percentage point is called in the lingo.

This distinguishes them from “active” funds where a manager tries to select assets that will do better than average. Such funds have higher costs and, unless they outperform markets over the long term (which the average fund does not), those costs eat into returns. Invest $100,000 for 30 years at 6%, with annual charges of 0.25%, and your portfolio will be worth almost $535,000; if the annual charges are 1.5%, your pot will grow to only $375,000.

Even great investors think that low-cost tracker funds make sense. In his latest letter to Berkshire Hathaway shareholders, Warren Buffett describes what should happen to his personal portfolio after his death. “My advice to the trustee could not be more simple: put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”

As investors wake up to the maths, active fund management is starting to face the kind of pressure seen in other industries, like newspapers, record labels and taxi companies, which are losing their role as gatekeepers. A report by the accountants at PwC forecasts that low-cost funds will double their share of the global fund-management industry by 2020 from 11% to 22% (see chart 1).

Earlier generations of investors were prepared to believe that the returns achieved by fund managers were down to skill. Now it has become clear that the returns were the result of factors that can be replicated. Like shoppers on a budget, investors are trading down from expensive brands to white-label goods. That may put many active managers out of a job.

Three factors are driving this commoditisation of fund management. The first is the rise of exchange-traded funds (ETFs)—portfolios of assets that track indices and trade on exchanges. Around $2.45 trillion is now invested in ETFs, up from just $425 billion in 2005, according to ETFGI, a consultancy (see chart 2). That makes this sector almost as big as the hedge-fund industry. The average fees on ETFs are just over 0.25%, but that proportion is inflated by specialist funds. State Street’s huge Spider fund, which tracks the S&P 500 index, charges only 0.09%.

The ETF sector is still small relative to the rival mutual-fund industry, which manages $27 trillion in assets, but it is beginning to close the gap. American ETFs received $895 billion of inflows between 2008 and 2013, compared with only $403 billion for actively managed mutual funds, according to the Investment Company Institute (ICI), an industry body.

One reason for the rise of ETFs is the changing behaviour of financial advisers.

Historically, many earned commissions, paid by the fund-management company whose products they sold and incorporated in the annual management charge. This system created a conflict of interest: the products that were best for advisers to sell were not necessarily the best products for clients to own. Low-cost trackers did not have sufficient fees to reward the advisers, so tended not to be recommended.

The best way to insure advisers’ independence is for them to be paid by the client, not the fund. But few clients wanted to pay an upfront fee when the cost of commission-based advice appeared to be free (because it was subsumed within the cost of the product).

In Britain the introduction of the retail distribution review (RDR) in 2013 abolished commissions and required advisers to explain the true cost of advice to clients. Slowly but steadily this will expand the market for low-cost funds. Other countries are following suit; versions of the RDR have been created in India and Australia, and are being set up in Switzerland, Germany, Italy and South Africa. The PwC report reckons that by 2020 nearly all developed markets will have introduced rules that align the interests of the salesman (or broker) with those of the customer. In addition, some investors have the confidence to buy financial products directly, without the use of an adviser, just as they buy insurance online; the internet and the rise of product forums known as fund supermarkets make it easy for them to do so.

The second trend driving the commoditisation of fund management is the rise of alternative indices, known as “smart beta”. Conventional indices weight assets according to their value: the biggest stock is the one with the highest market capitalisation. This may be the best way of measuring how the overall market is performing, but it is not the best approach to investing, smart-beta enthusiasts argue. Shares that rise rapidly in price, and thus become more expensive, get a bigger weight; shares that fall in price, and look cheap, have a smaller one. Investors who track these indices end up buying high and selling low.

To avoid this problem, smart-beta indices weight companies by their sales, or profits, or even volatility. In a sense, they replicate what active managers try to do, at much lower cost. Although some dismiss this as a fad, around $330 billion is now invested in smart-beta funds. Towers Watson, a consultancy to pension funds, says its clients have doubled their allocation to the sector over the past year.

The third trend behind commoditisation is the steady rise of defined-contribution (DC) corporate pensions. For most of the 20th century employers offered defined-benefit (DB) pensions, which are linked to the final salaries of employees. If the pension scheme had insufficient funds, the employer was required to top it up. This gave employers an incentive to look for high investment returns—and to employ active managers who charged high fees.

But in a DC pension the employer merely makes contributions. The payout is governed by the whims of the market; the employee bears all the investment risk. Most employers offer a default DC fund (which most employees opt for). And these funds usually have a big exposure to low-cost index-trackers: no employer can be blamed for opting for low-cost funds. The average large British company has costs of 0.41% on its DC scheme. That does not leave much scope for active fund managers. More than half of all schemes use trackers exclusively.

In Britain DC pensions are virtually universal for new private-sector employees, and the total size of DC schemes is slowly overtaking the old DB funds (see chart 3). DC assets rose from 38% to 47% of the private pensions sector between 2003 and 2013, according to Towers Watson. In America DC assets are already well ahead in the private sector, with $5.9 trillion as opposed to $3 trillion in DB schemes, according to the ICI, the industry group.

Governments are also pushing pension providers to opt for low-cost funds. In Britain pension charges will be capped at 0.75% a year from April 2015. As part of a plan to nudge people into taking out private pensions, known as auto-enrolment, the British government set up a collective scheme called NEST, with annual fees that equate to just 0.5%. Such measures make it likely that more investments will flow into tracker funds.

Money for old hope

The surprise is that commoditisation of the fund-management industry has not happened sooner. After all, the first low-cost tracking fund, designed to mimic the performance of the S&P 500 index, was created more than 40 years ago. The slow transition is partly a result of how most funds are bought and sold: the commissions for brokers that made it attractive to push managed funds, and the fact that many people buy their investment products through banks. These have little incentive to drive down costs. Indeed, part of the appeal of multi-purpose banking is the ability to sell higher-margin products to customers with deposit accounts.

Other reasons are rooted in psychology. When consumers buy books or songs, they get instant gratification. When they buy a mutual fund, it may be many years before they know whether they have made the right choice. As a result, cost may not be the primary factor in their choice. “Human beings like to feel they can outperform and get the best service,” says Edward Bonham Carter of Jupiter, an active fund-management firm.

Investors may also believe, despite legally required caveats, that past fund performance is a guide to the future riches. They want the best fund, not an average one (which an index tracker is likely to be). This gives active managers a great marketing advantage: hope. Inertia is a factor too. Investors who have placed their money with a big active manager often do not bother to move it. They may not even know whether their holding is outperforming or underperforming.

It is not only commoditisation that is now making life difficult for fund managers. Academics continue to debate whether markets are “efficient”, in the sense that all relevant news is incorporated in the price, giving active managers a hopeless task. But you do not need to accept this hypothesis to believe that it is difficult to beat a stockmarket index. By definition, it represents the performance of the average investor, before costs. Since fund managers incur costs, the performance of the average fund manager is doomed to lag the index.

A good proportion of managers will beat the index in a given period, whether through their own skill or simple luck. But it is hard to see how investors can identify managers like Mr Buffett in advance. Indeed, if such paragons could be easily identified upfront, they would attract all the available funds, driving the hopeless managers out of business.

Institutional investors, too, have gradually become more sophisticated about identifying how fund managers generate returns. A hundred years ago they regarded all returns as evidence of a manager’s skill. Then they began to compare returns with those of other managers or the market. Later, with the help of academics, they realised that fund managers might beat the index by taking more risk; so they started to use risk-adjusted measures. Then they realised that outperformance might be down to fashion: the manager might have had a big exposure to, say, value stocks that had been doing well in recent months; so they began to attribute managers’ performance to factors such as cheapness or exposure to smaller companies.

All this has narrowed the scope for managers to demonstrate skill, rather as Victorians explained more and more natural phenomena in terms of science, rather than divine intervention. Where market returns can be explained by exposure to various factors, those factors can be replicated in the form of ETFs at low cost. And the ETF investor need never worry about the manager losing his mojo or quitting to join another firm.

Nevertheless, active managers are not going to disappear overnight. Hedge-fund managers, for instance, have the ability to “go short” (bet on their prices to fall), something that ETF funds cannot do. This allows them to offer investors a smoother return, that is less dependent on the vagaries of the stockmarket. Private-equity managers, for their part, have the ability to remove companies from the glare of the public stockmarket, restructure them (with the help of a lot of tax-advantaged debt) and then sell them at a profit. Both types of manager take advantage of the “illiquidity premium” that is attached to certain assets, which offer a higher return because they cannot be instantly converted into cash.

Some argue that hedge-fund and private-equity managers capture the bulk of this excess return for themselves in the form of their famed “two-and-twenty” fee structure (2% annual management fee and 20% of the fund’s performance). The average return of hedge funds has lagged a plain-vanilla portfolio of 60% American equities and 40% Treasury bonds in nine of the past ten years.

In the wake of such disappointing returns, fees have come under pressure. What is more, hedge and private-equity funds are hard to fit into a DC framework, where workers are allowed to switch between funds on a regular basis; DC schemes need daily liquidity, which such funds cannot provide.

Still, these are likely to continue to appeal to three groups. The first is sovereign-wealth funds: they do not need regular liquidity and their managers may think active funds can provide excess returns over the long run. The second group comprises DB funds: many are in deficit and may hope that active management will boost returns and allow them to meet their pension promises. The third group is high-net-worth individuals who are looking for excess returns and like the “snob value” of investing with top-rated fund managers. In short, there will be a market for expensive fund managers, just as there is a market for designer clothes or vintage champagne.

Life will be harder for traditional active-fund-management companies. Their market share is being eroded by the ETFs at the bottom and by private-equity and hedge funds at the top. Many are accused of being “closet indexers”—building portfolios that closely resemble benchmarks like the S&P 500—while charging active fees.

Index-hugging makes business sense in the short term: it is serious underperformance that is most likely to get a fund manager sacked. As a result, the share of mutual funds that have portfolios which diverge widely from the index has been falling, down from 50-70% of the market in the 1980s to 20% today. But academic research shows, unsurprisingly, that only managers who do take big bets have a hope of consistently outperforming the index.

The big squeeze

When industries come under pricing pressure, they usually consolidate. That is yet to happen in the active part of the fund-management industry. The largest five equity-fund managers control only 47% of American mutual funds. Again, this may be due to the way the distribution system works: the fund-management arm of a universal bank will attract business no matter how lousy its returns. It may also be a result of the “random” element of active investing. Poor managers can have good years and good managers can have bad ones. The one prevents bad managers from disappearing, the other prevents good managers from getting too big.

The index-tracking business is much more concentrated. Almost 70% of the ETF market is controlled by just three companies: BlackRock (through the iShares brand), State Street and Vanguard. Passive investing lends itself to economies of scale. It costs little more to manage $20 billion than to manage $10 billion. Over time, this allows managers to bring down fees. “Vanguard wasn’t charging seven basis points when it started,” says Rob Arnott of Research Affiliates, a smart-beta manager.

Will the rise of tracker funds make the market less efficient, because investors will just be buying blind? Not in the near future: active funds still control the majority of assets. The dotcom bubble, for instance, was driven by active managers more than by trackers; the number of active technology funds had exploded. In addition, smart-beta funds are not buying the same stocks as most trackers; they act as natural balancers of the market.

The PwC report on the asset-management industry in 2020 begins with describing an imagined young Chinese woman who uses her smartphone app to buy, in a single click, a range of funds that most meet her needs and risk appetite. That hints at a reason why other industries have been commoditised so quickly: it has been easy to eliminate intermediaries. People can buy books from their Kindle or download songs to their iPad without visiting a bookstore or a record shop.

In the financial sector, by contrast, intermediaries are remarkably persistent. The ICI reckons that 80% of American retail investors pay for advice. People are able to buy a range of ETFs directly, but few feel confident about doing so. “Even bankers and lawyers don’t know what to do, they need advice,” says Mark Wiedman of BlackRock. There is no ideal portfolio that suits everyone: equities usually deliver higher returns over the long run, but with more volatility; government bonds offer a steady income but are vulnerable to inflation. Younger investors may be more willing to take risks, because they can afford to ride over the market’s bumps; older investors may need more income.

Good advice is certainly worth something: many American investors in pension plans have devoted a big proportion of their portfolios to cash (a low long-term return) or to their employer’s shares (too risky). The ability to avoid such mistakes is worth a one-off fee. But an investor should not pay 1% to 1.5% a year to an adviser. Nobody has yet shown that they can correctly and consistently time markets.

Companies and governments can look after the best interest of their workers by ensuring their pension schemes have as low costs as possible. To some extent, this is happening already. But if the world is going to look like PwC’s vision in 2020, the average investor will need to be better informed. At the very least, they need to read the personal-finance pages of newspapers, and understand the merits of tracker funds and the impact of low charges. Investors of the world, unite! You have nothing to lose but your fund managers’ fees.

Correction: A previous version of this article stated that the largest five equity-fund managers control 40% of American mutual funds. The correct number is 47%.

Posted on May 3rd 2014
Article from http://www.economist.com/

INVESTMENT EXTRA: Dividends flow from UK companies...AND fund managers believe bonanza is

ridodirected@gmail.com (RIDO) — Sat, 03 May 2014 04:46:00 +0000

By Holly Black
PUBLISHED: 21:20 GMT, 2 May 2014 | UPDATED: 21:20 GMT, 2 May 2014
Article from http://www.thisismoney.co.uk/money/investing/

Shareholders scooped a staggering £30.7billion in dividends between January and March – a record sum, and double their haul during the same period last year.

Although the bonanza was not quite as bountiful as it seemed – half was a one-off Vodafone payment from selling its stake in US rival Verizon – it was still nearly £1billion more than the first quarter of 2013. Many fund managers believe the buoyant flow of dividends streaming out of UK companies is set to continue.

Martin Cholwill, manager of the Royal London UK Equity Income fund, says: ‘Since the financial crisis, many UK companies have had to clean up their act.

'Debts have been paid down, they have stronger balance sheets, and cash flow is significantly better than it was.’

Add to that a burgeoning UK economy and historically low interest rates, and the appeal of investing in income-paying firms becomes clear. For most, the easiest way to get a share in these rising dividends is by putting money into an equity income fund.

The aim is to produce an income 10 per cent higher than the yield paid out by all UK companies on the stock exchange.

As an example, take a typical yield – this is the income per share, stated as a percentage of the price – of 3.34 per cent. In a nutshell, this means a share costing £1 would give you an income of 3.34p.

So to get an income higher than this, income fund managers must pay a yield of 3.67 per cent.

Today, a decent equity income fund should pay an income of around 4 per cent. The target for such funds is usually big, dependable companies whose products are always in demand whatever the economic weather – oil companies such as BP, drug companies like GlaxoSmithKline, engineering giants such as BAE and tobacco firm Imperial.

Alternatively, the riskier route is to invest directly into shares offering such a yield or – if you’re prepared to gamble on smaller, less established companies – a higher payout.

‘There are two key points to consider when choosing income companies: is the dividend sustainable and is it likely to grow?’ says Cholwill. He recommends investing in a mix of UK companies, including those which focus on their home-grown business such as WH Smith.

With a yield of 3.6 per cent in 2013, its final dividend last year was 30.7p per share – and the divi has risen every year since 2009.

He also backs firms with exposure to international markets and likes engineering firm Spirax Sarco.

It sees 80 per cent of its business come from outside the UK. With a yield of 2 per cent, the total dividend payment per share last year was 59p – another firm which has hiked income payments to shareholders every year since 2009.

For reliable dividend payments, Jonathan Jackson, head of equities at wealth management firm Killik & Co, likes oil companies such as Shell and BP and pharmaceutical firms such as GlaxoSmithKline and AstraZeneca.

AZ has paid out £16.9billion in dividends since 2007 and is currently the subject of a takeover bid from rival firm Pfizer.

Foreign exchange is also a major consideration for dividends. Many businesses pay their investors in a different currency, which can significantly affect your earnings.

Capita says just 10 of the top 20 UK dividend paying companies pay out in sterling.

But direct share buying is not the right choice for everyone. If you have a small amount to invest, it makes much more sense to put that money into a fund where the risk is better spread out.

Mick Gilligan at stockbroker Killik likes the PFS Chelverton UK Equity Income fund. Fund manager David Horner looks at smaller firms and invests in public transport firm Go-Ahead Group and construction business Galliford Try.

The fund has returned 27 per cent in the past year on top of the quarterly income it pays and is 4th in the 99-strong UK Equity Income fund sector.

But not everyone believes the dividend stream will flow forever.

Sheridan Adams, head of investment research at The Share Centre, says: ‘If inflation picks up and interest rates rise, then that yield that you can get from investing in one of these big companies will be easily achieved elsewhere with much less risk.’

Holly Black
PUBLISHED: 21:20 GMT, 2 May 2014 | UPDATED: 21:20 GMT, 2 May 2014
Article from http://www.thisismoney.co.uk/money/investing/

Japan overhauls its public pension fund

ridodirected@gmail.com (RIDO) — Tue, 22 Apr 2014 09:26:00 +0000

By Chikafumi Hodo and Takaya Yamaguchi
TOKYO Tue Apr 22, 2014 1:36am EDT
http://www.reuters.com/

(Reuters) - Japan overhauled the world's biggest public pension fund on Tuesday, appointing new committee members, in a push toward Prime Minister Shinzo Abe's goal of a more aggressive investment strategy.

The government announced a reshuffle of the Investment Committee of the $1.26 trillion Government Pension Investment Fund (GPIF), in line with Abe's drive to have the fund make riskier investments and rely less on low-yielding government bonds.

Global financial markets are keenly watching GPIF's investment strategy as the fund, bigger than Mexico's economy, is a huge investor and a bellwether for other Japanese institutional investors.

The new committee will play a leading role when GPIF sets its new investment allocation targets over the coming months. Abe has promised GPIF reform as an element of his growth strategy, the "third arrow" in his policy, following aggressive monetary and fiscal stimulus.

Health Minister Norihisa Tamura, who appoints the GPIF Investment Committee members, shrank the panel to eight members from 10 as part of the overhaul. Two members retained their seats and one former member was brought back on.

Tamura said on Tuesday he hopes that new investment advisers will use their expertise to raise investment returns, while controlling risks and taking into account economic development in setting up new investment targets.

"The interests of pension beneficiaries come first in pension fund management," Tamura told a news conference after the regular cabinet meeting.

The panel retains a balance of academics and economists, with one representative each from the main trade union federation - whose pensions are at stake - and the biggest business lobby.

But in a sign of Abe's more aggressive strategy, three of the now eight members sat on the advisory panel that spearheaded a change in the fund's strategy last year to achieve higher investment returns.

They are Sadayuki Horie, senior researcher at Nomura Research Institute; Isao Sugaya of the JTUC Research Institute for Advancement of Living Standards, a think tank of Japan's top labor federation; and Yasuhiro Yonezawa, a professor of Waseda University's graduate school of finance.

Yonezawa, an expert on pension matters, headed the GPIF Investment Committee from 2008-2010 and sits on several advisory panels of the Health Ministry's Pension Fund Bureau.

Tamura declined to comment on who will head GPIF's investment committee.

The advisory panel was led by Tokyo University Professor Takatoshi Ito, who has been outspoken in calling for GPIF to undertake a more aggressive investment strategy.

ASSET ALLOCATION

Financial markets showed muted reaction to GPIF's personnel change, but dealers were concerned about how the public fund would potentially change its investment strategy.

"We believe this will be a major step for the world's largest pension fund to review its portfolio, increasing risk assets as well as reducing JGB holdings," Citi said in its forex report.

"To stabilize JGB markets, the possibility of additional Bank of Japan asset purchase will grow. In our view, they're important elements to promote Japanese yen depreciation going forward," it said.

GPIF, which was set up in 2001, conducted the biggest shake-up of its investment strategy last June when it revised its allocation targets to raise the core weighting for Japanese stocks and lower the weighting for domestic bonds in a bid to achieve higher returns.

GPIF now targets 12 percent of its investments in Japanese stocks, 60 percent in domestic bonds, 11 percent in foreign bonds, 12 percent in foreign stocks and 5 percent in short-term assets.

In February, GPIF agreed with Canada's Ontario Municipal Employees Retirement System and the Development Bank of Japan to invest in infrastructure projects through an investment trust fund.

GPIF recently began benchmarking some passive investments to the new JPX 400 index, which focuses on return on equity and corporate governance. The fund also uses more active investment strategies, in line with the Ito panel's recommendations.

GPIF has said it plans to expand its investment in foreign bonds to emerging markets bonds, foreign high-yield bonds and foreign inflation-linked bonds.

(Editing by Jacqueline Wong)

TOKYO Tue Apr 22, 2014 1:36am EDT
http://www.reuters.com/

Amateur investors tap 401(k)s to buy homes

ridodirected@gmail.com (RIDO) — Mon, 20 May 2013 12:11:00 +0000

By Les Christie @CNNMoney May 20, 2013: 6:08 AM ET
Article from http://money.cnn.com/

NEW YORK (CNNMoney)

In order to get in on hot housing markets, amateur investors are buying up homes and taking risky measures -- like tapping their retirement accounts -- to fund the deals.

"We're seeing many people cash out 401(k)s or IRAs because they want to take advantage of the market," said Sean Galaris of financial services firm LM Funding, based in New York and Miami.

"This new scenario involves people losing significant personal funds since they are financing real estate through retirement accounts, savings and life insurance."

Galaris should know. His company buys delinquent fee accounts from condo associations and collects the debts. Many of the condo owners he collects from either resort to tapping their 401(k)s or IRAs when they come up short or have already used up those funds to buy the property in the first place.

Lori McDermott, an insurance broker from West Seneca, N.Y., took out a $50,000 loan against her 401(k) for a downpayment on a home in Sarasota, Fla., last December. A short sale, McDermott got the place for $225,000 -- a steal considering the seller owed $465,000 on the mortgage.

But still, it's a risk. If McDermott loses her job or quits, then any unpaid part of the loan will be subject to income tax and possibly a 10% early withdrawal penalty.

"The decision to take money from your 401(k) is not for everyone," said McDermott. At the age of 48, she has already had five arterial stents implanted. "Having heart disease put me in a position where I was scrambling for life insurance," she said. " I looked elsewhere to create a legacy: real estate."

Adam Bergman, a tax attorney for IRA Financial Group in New York, gets several calls a day from clients like McDermott looking to invest their retirement funds in real estate.

"Our average client has retirement accounts of about $150,000 and is looking to buy one or two properties," he said. "After 2008, they didn't trust Wall Street. They wanted hard assets."

But Wall Street is getting into this market as well and that is driving prices higher. Many of the single-family homes and condos that have been purchased over the past three years have been snapped up by hedge funds, foreign investors, private equity and wealthy real estate partnerships.

The large-scale purchases these investors are making are driving up prices in markets that were hit hardest during the housing bust. Atlanta home prices jumped 16.5% in the 12 months ended in February, according to the S&P/Case-Shiller home price index.

In Las Vegas, which was ground zero for the foreclosure crisis, prices have climbed 17.6% and Phoenix has seen an increase of 23%. In Florida, Tampa and Miami have recorded double-digit increases.

"They bought a lot of stuff cheap last year, but now they're paying market value," said Jack McCabe, a Florida-based real estate consultant. "Sometimes they're overpaying."

As home prices rise, profits are harder to come by for investors than they were a year or two ago. "There's no way they can get an 8% return buying at today's market prices," said McCabe.

After deducting all the fees, taxes, maintenance and other costs, "They're lucky to get a 2% return," he said.

And that's if all goes well with the rental. It often does not. Investments in rental properties can quickly sour if, say, a tenant stops paying rent for a few months or if a condo or homeowners association imposes special assessments to pay for major repairs.

"When that happens, investors may not have the wherewithal to pay their monthly common charges and property taxes," said Galaris. "A whole lot of the people in the markets are not experts."

Galaris said amateur investors sometimes spend all their free cash on their purchases and then have to scramble to pay the fees. If real estate turns south again, that could leave a lot of investors in dire financial condition for their golden years.

Have you ever bought an investment property and then later regretted becoming a landlord? Share your story with us.

First Published: May 20, 2013: 6:08 AM ET
Les Christie @CNNMoney May 20, 2013: 6:08 AM ET
Article from http://money.cnn.com/

How to Weigh the Future

ridodirected@gmail.com (RIDO) — Fri, 17 May 2013 08:31:00 +0000

May 17, 2013 - 3:00am

By Kevin Kiley

Article from http://www.insidehighered.com/news/

Would you be willing to pay about $13,000 more a year in tuition to go to a college that doesn’t invest in fossil fuels?

That’s the amount of revenue – a total of about $204 million over 10 years -- that Swarthmore College administrators recently estimated the college would forgo in endowment returns if the college’s governing board decided to divest from fossil fuels.

“There is no way in advance to predict the cost of something,” said Suzanne P. Welsh, vice president for finance and treasurer at Swarthmore. “But as the board looks at this, there is a reasonable case that can be made that there would be a significant cost that the board should take into account.”

Swarthmore, like many higher education institutions, has been under pressure for the past few years from a variety of student, faculty and outside groups to divest from companies that extract and burn fossil fuels. Those activists, pointing to the perceived success of a 1980s divestment movement that many say helped end South African apartheid, say divestment could be an effective tool to get companies and the government to address issues of climate change.

That pressure has ramped up in recent months, with groups targeting institutions with some of the largest endowments. And with few signs that national policy regarding fossil fuels will change in the near future, the debate is likely to be a continued point of contention on college campuses into the next year.

Part of the reason why the debate has such staying power is because it is almost impossible to know the true costs and benefits of an action like divestment. There are few historical case studies that can be examined, and those that do exist might not be applicable to the current situation. Estimating the cost would require predicting investment returns, and, as investors often say, “past performance is no guarantee of future success.”

Proponents of divestment argue that the costs would be negligible and that action in that direction could have a profound impact on the national debate. Opponents say institutions that divest would see a hit to their bottom lines while having little or no economic impact on the divested companies. Neither side can marshal much compelling evidence to prove the other wrong.

Several college administrators have argued that the costs of divestment would be large, but Swarthmore’s estimate, part of a presentation administrators were scheduled to deliver at a May 9 board meeting, is one of the first attempts to put to paper what a college thinks it will lose by divesting.

What’s Costing So Much?

The bulk of Swarthmore’s estimated losses would not come from screening out fossil fuel companies directly. Such investments do not make up a large portion of the university’s portfolio and could likely be replaced by other investments with similar predicted returns. Instead, administrators argue that a divestment screen of any kind would require the college to fundamentally change how it manages its endowment.

At the moment, the university invests in a range of asset classes -- domestic and international equity, alternative assets, private equity, real estate, and bonds and cash -- all of which carry different levels of risk and return. Within these asset classes, the college’s investment committee picks outside investment managers who employ diverse strategies. (Some institutions -- particularly the wealthiest -- also invest directly instead of going through investment managers. Swarthmore does not do that.)

“The success of the college’s investment strategy depends on having a diversified mix of investments and hiring the best investment firms to manage specific portfolios of investments,” the report states.

In general, investment managers can employ one of two tactics: they can either attempt to mimic the market using index funds, a strategy called “passive management,” or take a more active approach and put together customized portfolios that attempt to outperform the market. These active portfolios can either be customized for an institution, an approach that often comes with a high fee, or combine a bunch of investors’ money into a commingled fund.

Swarthmore does not use index funds, believing that it will see a higher return by trying to beat the market. Some of its money is in separately managed portfolios of just Swarthmore money and some of it is in commingled funds. About $660 million of the university’s $1.5 million endowment is tied up in commingled funds that possibly include fossil fuels, according to the report.

Through active management, the college’s domestic and international equity portfolios have outperformed indexes by 1.8 percent and 1.7 percent, respectively, over the past 10 years, according to the report.

The Swarthmore report argues that divestment would essentially require the college to shift the money it currently places in actively managed commingled funds to passive index funds, which saw lower returns over the past 10 years, and administrators believe they will have lower returns in the long run. Administrators say there are few options of actively managed – yet screened – commingled funds.

If the college switched to separately managed funds of just Swarthmore money, it would likely have to pay higher fees, which would also limit returns.

Swarthmore administrators also said that a fossil fuel screen would make it so the college could not replicate the diversity of the current portfolio. “Because there are so few funds that are actively managed and screen out fossil fuels, it would be hard to replicate diversification that we currently have in the portfolio,” Welsh said. “We would likely have to replace them with index funds, and to do that we would have to give up performance.”

Not Applicable for Everybody

Welsh said Swarthmore’s analysis likely isn’t relevant to the majority of colleges and universities. The college’s endowment is one of the country’s 50 largest. Its investment strategy, portfolio mix and reliance on outside investment managers is likely different from other institutions.

The half-dozen colleges -- including Green Mountain College, which announced earlier this week that it would divest from fossil fuels – that have divested from fossil fuels or added additional screens to their investment policies all have relatively small endowments, often less than $10 million. They rely less on their endowments for funding operations, which makes divestment a less risky proposition.

Swarthmore, on the other hand, finances about half its operating budget through returns on its investments.

Most of the divested institutions also lack the funding to buy into the better actively managed funds, meaning they are more likely to take a more passive approach to managing their investments, often placing them in index funds.

Too Many Assumptions

Investment managers that specialize in socially responsible investing say the Swarthmore paper – like other studies that have tried to estimate the cost of divestment – makes too many assumptions about the nature of the market and tend to over-estimate the cost.

“My view of the Swarthmore paper is that it’s asking, ‘What’s the worst possible case of what it’s going to cost to divest?’ “ said Christine Jantz, an investment analyst with Northstar Asset Management, a socially responsible investment management firm based in Boston.

Jantz and Julie Goodridge, Northstar’s founder and CEO, said there’s no reason to believe that divesting from fossil fuels would require that Swarthmore shift away from active management to index funds. They said there’s a good chance that some of the college’s current investment managers don’t have money in the sector and that there are a range of investment management firms that actively manage portfolios while making consideration about social causes.

“People have been doing this since the South African divestment movement,” Goodridge said. “There are a number of individual mangers who specialize in it, who are quite skilled at social investing. It has been 25, 30 years since this became its own industry.”

Jantz and Goodridge also said the college – especially if joined by other institutions concerned about fossil fuel use – could likely ask investment managers to change their practice slightly. “Active managers would not care to lose this money,” Jantz said. “You’ve got to assume that they would be willing to try to work with them around concerns if they would ask.”

Swarthmore students advocating for divestment say they don’t buy the college’s logic. “I believe that there are options other than index funds,” said Patrick Walsh, a Swarthmore junior who is part of Mountain Justice, one of the student groups advocating divestment. “There exist separately managed funds that screen for the fossil fuel industry, and there do exist socially responsible investments, so we believe there are more options than the administration is presenting here.”

Jantz and Goodridge also took aim at a paper by Timothy Adler and Mark Kritzman at Windham Capital Management that has been widely cited during the debate about divestment, saying its assumptions about what percent of the market colleges would have to divest from, the size of a portfolio and the expected return of the energy sector over the next few years are all too high, meaning the cost they estimate, a decrease in returns of about 0.4 percent, would be even smaller.

Unpredictable Benefits

But even with various estimates of potential costs, the calculation about whether or not a given higher education institution should divest from fossil fuel use is still almost as murky because the benefits of doing so are so unclear.

Studies of the South African divestment movement suggest that the actual economic impact of divestment was minimal, but that the movement raised significant awareness of the issue in the public consciousness.

It is unclear if colleges and universities divesting from fossil fuel companies would have the same political impact, particularly given political polarization around the issue.

Welsh, the Swarthmore treasurer, said there are reasons to believe that the college would be more effective addressing climate change through other avenues.

“If Swarthmore were to divest, it could not participate in shareholder activism efforts, many of which have resulted in tangible progress,” the Swarthmore report states. “If engaged shareholders were replaced by shareholders without conscience on these issues, it would not deprive companies of capital, but would rather make it easier for them to maintain the status quo.”

And for some, the numbers about cost aren’t particularly relevant. Activists say that if some estimates about the human and economic cost of climate change are to be believed, $200 million – or even $200 billion – would be a small price to pay for averting it. “Climate change one of the largest moral and ethical problems going to face in century,” Walsh, the Swarthmore student, said.

May 17, 2013 - 3:00am

Kevin Kiley

Article from http://www.insidehighered.com/news/

GCC asset management grows as $121.3bn worth of road, bridge infrastructure investment underway

ridodirected@gmail.com (RIDO) — Wed, 15 May 2013 08:07:00 +0000

United Arab Emirates: 2 hours, 33 minutes ago
Article from http://www.ameinfo.com/

As GCC states forge ahead with road and bridge infrastructure projects worth $121.3bn, the asset management industry throughout the region is booming.

The latest methodologies and strategies in asset risk management, asset reliability and asset information will be up for debate and discussion this month with the return of the Government Asset Management Congress, the only event of its kind in the Middle East which provides a platform for the sharing of international and regional best practice among asset owners.

The four-day conference, taking place from 12-15 May 2013 at The Address Hotel, Dubai Mall, will feature some of the most respected figureheads in the industry, including Matar Al Mehairi, Senior Manager Asset Management at Dubai Electricity and Water Authority (DEWA); Nicholas Wellwood, Advisor Integrated Infrastructure Planning at the Department of Municipal Affairs in Abu Dhabi; and Dr Najib Dandachi, Asset Management Director at TRANSCO.

The congress will impart knowledge to asset owners at federal, state and local government levels, who are keen to develop their asset management techniques and increase their understanding in this area.

Speaking for the first time this year, Konrad Siu, Director at the Office of Infrastructure and Funding Strategy, City of Edmonton in Canada, said, "It is an honour to share the City of Edmonton's infrastructure asset management experience at the conference, as an example of best international practices. I hope that Edmonton's infrastructure asset management journey and the tools and processes developed by the City of Edmonton will help provide perspective and ideas for managing infrastructure in the Middle East."

Delegates at the congress will hear firsthand from leaders of Middle Eastern utilities and transport agencies on why the emerging discipline of asset management is vital to the sustainability of the region's infrastructure.

Keith Paintin, Business Planning and Performance Specialist for TRANSCO, the first oil and gas company in the GCC to achieve PAS 55, a 28-point checklist of good practices in physical asset management, said, "This event provides us with an excellent opportunity to share experiences, thoughts and concerns with other parties going through the same transition and learning curve. I will be raising the profile and benefits of implementing a robust risk management activity and ethos into a company and hope to provide inspiration for the delegates to take back to their organisation and look at how it can be put into practice."

The event will include a series of post-Congress master classes, from 14 to 15 May 2013, where attendees will hear from a selection of international experts about how to implement a corporate risk management framework and how to build an asset-orientated organisation with PAS 55.

Management from Platinum sponsor Halcrow - CH2MHILL will explain the principles of whole life costing for capital and operations investment decision making. David Pocock, International Practice Director for Asset Management will draw on examples from a wide range of sectors, as well as techniques from emerging industry research and development.

Tim Young, Director at Qasr, support sponsor for the event this year, said, "Our master class is developed to be able to support the governments, utilities and industries of the region in improving their asset management capabilities. Last year's class achieved a 97% satisfaction rating from the audience and this year's session will be engaging, challenging and interactive."

Nabil Ghaleb, Projects Interface Management Department Head at GASCO will be sharing his thoughts on leveraging IT to create and maintain accurate assets information across a large and growing asset intensive organisation.

He commented, "GASCO is rapidly growing to be one of the largest gas processing companies in the world. Systems developed by GASCO have been presented and adopted by many GCC oil and gas companies already, and shared with our respective shareholders, like Shell and Total. Offering our insights and research at the congress is a great way to communicate and learn about best practice procedures."

The conference will hear how international peers have successfully driven asset performance gains and savings. "For all delegates there will be something that they can take back to the work place and put into practice and it's a great opportunity to hear about the impressive asset management practices being undertaken in the region," said Joe Bannan, Branch Manager Asset Management Brisbane Infrastructure at Brisbane City Council, Australia.

United Arab Emirates: 2 hours, 33 minutes ago
Article from http://www.ameinfo.com/

Managers looking good to PE firms

ridodirected@gmail.com (RIDO) — Mon, 13 May 2013 06:27:00 +0000

Investors love "cash cow' sector because of attractive growth prospects

By Rick Baert | May 13, 2013
Article from http://www.pionline.com/article/20130513/PRINTSUB/305139971/managers-looking-good-to-pe-firms

Private equity firms' interest in money manager investments is rising in tandem with the managers' increases in assets under management and revenue.

“There'll be more private equity money coming into money managers,” said Ralph F. “Chip” MacDonald III, Atlanta-based partner at law firm Jones Day's financial institutions litigation and regulation practice. He said The Carlyle Group LP was “ahead of the curve” in its $780 million deal for a 60% stake in TCW Group, which closed in February.

Money management firms are “a cash cow” for private equity investors, added Sam Yildirim, partner and U.S. asset management deals leader at PricewaterhouseCoopers LLC, New York. “As long as they do their due diligence and understand the business and price it right, asset management is great. Their assets under management generate revenue, making them great deals for private equity managers.”

“It's an attractive asset class for a lot of reasons,” added Mr. MacDonald. “It's a cyclical asset class, and now's a great time for asset management. Look at the stock prices of publicly traded asset management firms. They're a nice proxy for the market. They've done well, and their assets are going up accordingly.”

“It's a growth business, not a venture business,” said Chris Browne, New York-based managing director at Sandler O'Neill & Partners LP. “Private equity investors aren't seeding startup businesses, unlike health care or technology ... Private equity will always have an interest in asset management as long as asset management is a growth business.”

And there's a lot to like on the money manager side as well, for those who want to maintain investment independence and facilitate management buyouts — things that would be more difficult with a corporate buyer.

“There's a lot of interest in asset management from both private equity and corporate buyers,” said Ms. Yildirim. “Private-equity-backed management buyouts can be very attractive to strong management teams as it involves fewer business disruptions. Generally they do not involve integration, which can represent significant change, key management jobs are safer and management has a stake in the future success of the business through share ownership and/or stock options.”

The timing also is right for many money managers to explore private equity investment, whether for key-man issues, in which founders are contemplating retirement and deciding how to pass on the firm to the next generation, or for a lifeline to a struggling firm.

“Managers can be a victim of their own success if it's a privately owned firm,” said Mr. MacDonald. “How do they monetize the assets and pick a point in time to keep the firm going, but then the next generation can't afford to buy it. That's where private equity firms come in.”

Sources say Janus Capital Group Inc. is a struggling money manager that might benefit from a private equity investment, given its long-term asset decline and plunge in the value of its stock — to $8.91 as of May 10 from $30 in June 2008.

John R. Groneman, Janus' director of investor relations and treasury, said officials would not comment.

Some firms, like TA Associates Management LP, bought stakes in money managers before the 2008-2009 financial crisis, and in those cases, their eight-year investment cycles are at an end. TA Associates' stake in Boston-based quantitative equity firm Numeric Investors LLC is now up for sale.

“The time cycle makes sense for firms to talk about exiting,” said Ms. Yildirim. “But it's not a function of them not liking this sector.”

Money managers' investment strategies are important to private equity firms, Ms. Yildirim said. For equity managers, particularly active managers, outflows into passive strategies might make them less attractive. “Depending on the type of manager, timing is very important, determining when people will come back into these strategies,” she said.

“Private equity firms are being more selective in a post-2008 environment,” said Sandler O'Neill's Mr. Browne. They're not just interested in a track record but in attractive asset classes, more alternatives, more emerging markets, more diversified asset managers. ... You can't be plain vanilla.”

What also matters is the people, Mr. MacDonald said, with, for example, the age of a firm's principals being as important as the overall state of the market.

“You're dealing with a people business, the people who make the money,” he said. “If you're going to invest, the concern is, are the people who took you to the dance going to stay on the dance floor with you?” He also said you can't alienate investment consultants and pension fund clients, among others. “You've got to communicate very well with consultants and pension fund clients,” he said. “You've got to give them some comfort.”

This article originally appeared in the May 13, 2013 print issue as, "Managers looking good to PE firms".

— Contact Rick Baert at rbaert@pionline.com | @Baert_PI

Rick Baert | May 13, 2013
Article from http://www.pionline.com/article/20130513/PRINTSUB/305139971/managers-looking-good-to-pe-firms

In Vegas, investors strip hedge fund managers of their secrets

ridodirected@gmail.com (RIDO) — Sat, 11 May 2013 06:03:00 +0000

By Svea Herbst-Bayliss and Katya Wachtel
Published May 10, 2013, Reuters
Article from: http://www.foxbusiness.com/news/2013/05/10/in-vegas-investors-strip-hedge-fund-managers-their-secrets/#ixzz2SxeCOdtx

LAS VEGAS – In Las Vegas this week, hedge fund investors rubbed shoulders with big-name managers, Hollywood heavies and political swells against a Bellagio hotel backdrop of glitz and gambling.

For the fifth straight year, private jets dropped off billionaire managers to schmooze clients and share success recipes with legions of hedge fund faithful who came on commercial airliners for the SkyBridge Alternatives Conference, which ran from Tuesday evening through Friday.

Anthony Scaramucci, founder of conference sponsor SkyBridge Capital and affectionately known as "the Mooch," played host to Daniel Loeb, one of the few managers producing big returns this year; Al Pacino; former French President Nicolas Sarkozy; and former U.S. Defense Secretary Leon Panetta.

For many of the people attending what has become the $2.25 trillion industry's biggest annual event, the caliber of the panelists (including Jane Buchan who runs PAAMCO and Leon Cooperman who runs Omega Advisors) and the chance of discovering even one new or unusual investment idea were the main drawing cards, followed by a concert by Grammy Award-winning band Train, blackjack and cocktails by the pools.

Clayton Cheek, a managing director at hedge fund Onex Credit, has attended the conference for four years, believing that what he learns here enables him to stay competitive by networking with contacts and hearing about hot-button topics: "If you stop evolving in this industry, the Darwin effect diminishes your business very quickly."

Behind the scenes, investors jockeyed to find the next star manager - this generation's George Soros or Stanley Druckenmiller. John Paulson was one of a handful of top-tier speakers who headlined the event, though according to people who saw him he flew commercial after two years of heavy losses.

Investors with the power to write multimillion-dollar checks groused about recent sluggish returns. The average hedge fund gained 4.6 percent through April, according to eVestment, while the S&P 500 Index rose 12 percent.

The industry's white-hot appeal has also been cooled by ongoing regulatory probes. This week Philip Falcone, who headlined here last year, agreed to a two-year industry ban to settle fraud charges with the Securities and Exchange Commission.

Steven A. Cohen, who spoke two years ago, extended his investors' redemption deadline as his SAC Capital Advisors scrambled to keep clients in the midst of the government's insider trading probe. Neither Cohen nor SAC has been accused of wrongdoing.

"I'm not here to be a critic of hedge fund managers," said Frank Caprio, Rhode Island's former state treasurer who is running for the job again next year. "But any alternative investment has to be justified by superior long-term returns." He added that if hedge funds don't deliver, "There is no place for them under my watch."

Caprio, who oversaw the state's $7 billion pension fund from 2007 to 2011, wasn't alone in his blunt assessment.

Jim Berardo, who invests for a wealthy family and is based in Houston, turned his back on hedge funds several years ago. Still, he wanted to participate and maybe find new talent. "We've done so well everywhere else since then, we've felt no need" to put money back into hedge funds, he said, adding that the high fees many hedge funds charge for mediocre performance were "ridiculous."

What irritates investors most are the dull ideas, several attendees said, with too many managers talking the same talk.

"There was a panel on investment opportunities in credit, and all of the panelists sounded the same," said one investor. Berardo said he wanted to see if "anybody out there not following the herd."

As more people chase fewer good ideas and making money is becoming harder, investors are firing the underperformers more quickly. The conference was witness to their skepticism.

Philip Weingord's $2 billion Seer Capital Management gained 26 percent last year, far more than many bigger and more prominent names. His fund, which invests in debt, drew interested inquiries at Bellagio.

"The level of sophistication among investors is far more advanced now, and they are asking very good and detailed questions."

(Reporting by Svea Herbst-Bayliss; editing by Prudence Crowther)

Svea Herbst-Bayliss and Katya Wachtel
Published May 10, 2013, Reuters
Article from: http://www.foxbusiness.com/news/2013/05/10/in-vegas-investors-strip-hedge-fund-managers-their-secrets/#ixzz2SxeCOdtx

SICO equity funds win top grading in Mena

ridodirected@gmail.com (RIDO) — Thu, 09 May 2013 05:40:00 +0000

Posted on » Thursday, May 09, 2013
From http://www.gulf-daily-news.com

MANAMA: Bahrain-based regional investment bank Securities and Investment Company (SICO) yesterday said that all five of its equity funds received the highest grading in the Middle East and North Africa (Mena) region from Standard & Poor's Capital IQ.

In its 12-month review covering the period to December 31, S&P Capital IQ graded three of SICO funds Gold, while two were graded Silver.

According to S&P Capital IQ, the underlying factors for SICO's fund grading included a strong and growing investment team with relatively modest staff turnover, the development of disciplined risk monitoring procedures compared with its peers and a consistent track record and continuing outperformance of funds relative to their benchmarks and peers.

Putting SICO's performance into context, of the 150 or so funds investing in the Mena region, only 18 achieved S&P Capital IQ gradings in 2012, with only three securing a Gold grading and fifteen achieving Silver status.

Of these funds, the only three that achieved a Gold grading are all managed by SICO.

The Khaleej Equity Fund, which invests in GCC listed equities, achieved a return of 5.9 per cent for the year, and has outperformed its benchmark for seven out of eight years since its March 2004 inception.

It is one of the few funds in the region to be awarded a Gold fund grading and a five-year long-term grading by Standard & Poor's Capital IQ.

The fund also received the Outstanding Fund Performance & Innovation award at the fourth annual MENA Fund Manager Performance Awards ceremony in January.

The SICO Gulf Equity Fund, which invests in GCC-listed equities, excluding Saudi Arabia, delivered a return of 6.1pc for the year.

The fund, which is graded Gold, has outperformed its benchmark in five of six full calendar years since its March 2006 launch.

The SICO Arab Financial Fund, which invests primarily in Mena financial sector equities, achieved a return of 2.9pc in 2012.

Graded Gold, the fund's relative returns have been consistently strong, outperforming the benchmark in each calendar since its inception in August 2007.

The SICO Selected Securities Fund, which invests principally in Bahrain-listed equity and debt securities, achieved a return of 1.2pc for the year.

Graded Silver the fund has one of the longest track records in its asset class, and has outperformed its benchmark in 11 out of 13 years since its May 1998 inception.

The SICO Kingdom Equity Fund, which invests primarily in Saudi-listed equities, delivered a return of 8.7pc for 2012.

The fund has been graded Silver and has posted an initial strong performance relative to its benchmark since its launch in February 2011.

In addition to these equity funds, the SICO Money Market Fund recorded an annualised return of 0.99pc in 2012.

Launched in May 2010, the fund invests in regional investment grade money market instruments such as GCC government bills and notes, corporate paper, and domestic banks' term deposits.

"SICO's prudent investment style has enabled us to deliver another strong performance for our clients in 2012, despite markets remaining volatile during the year," said SICO chief executive Anthony Mallis. "The combination of our regional insight and quality of research is a key factor in enabling SICO to provide consistent and stable long-term returns to our investors.

"Looking ahead, equities remain the preferred asset class as cash continues to provide a near zero return. GCC equities are forecast to generate moderate returns in the range of 10pc to 15pc in 2013, driven by an improvement in overall fundamentals, multiple re-rating and earnings growth. Regional markets are currently significantly undervalued, and we believe offer attractive opportunities to long-term investors."

During 2012, SICO maintained its status as Bahrain's largest GCC public markets asset manager, with total assets under management increasing by 10pc to BD226m. Assets under management comprise SICO's own funds, funds sponsored by other institutions for which SICO acts as the investment manager and discretionary portfolio managed accounts, by which SICO provides tailor-made investment solutions to fixed income and equity oriented institutional clients.

Posted on » Thursday, May 09, 2013
From http://www.gulf-daily-news.com

The rising star funds of 2013

ridodirected@gmail.com (RIDO) — Tue, 07 May 2013 06:24:00 +0000

We ask the experts to share their favourite funds for investors looking for a little more risk.

Land of the rising sun?: several experts believe it may soon be Japan's time to shine.

By Rosie Murray-West7:00AM GMT 26 Feb 2013
http://www.telegraph.co.uk/finance/personalfinance/investing/

Feel like taking a little more risk? We asked financial professionals to share their suggested funds of 2013.

Investors should remember that past performance is no indicator of future gains and that the value of investments – in particular share holdings – can go down as well as up.

Shaun Port

Chief Investment Office for online investment manager Nutmeg.com

Fund Pick HSBC MSCI Indonesia ETF

Why We think Indonesia is an interesting pick for 2013. Private sector credit accounts for just 30pc of GDP in Indonesia – a fraction compared to other south-east Asian economies – but loans are growing at 22pc per year. The economy is growing at a steady 6-7pc per year and with growth in the rest of Asia starting to rebound, prospects for Indonesia encouraging.

The stock market has significantly lagged behind other countries in the region, notably Thailand and the Philippines, and we believe Indonesia will start to catch up in 2013.

Investing through the HSBC MSCI Indonesia ETF gives access to the largest companies listed on the Indonesian stock market, with low ongoing fees of just 0.6pc per annum.

Mark Dampier

Hargreaves Lansdown

Fund Pick: JPM Natural Resources

Why: If you are going for an outsider you need to look at what has had a hard time over the previous year or so. That firmly puts you in the oil, gold, resource area. JPM Natural Resources covers all three. The fund is down 36.4pc since the end of 2010, so you are clearly not buying at the top. The oil price is at about a nine-month high, gold too, and "off the top" has also done well, but the companies involved in mining and extracting have tanked. So there seems to be a good chance we'll see a re-rating at some point, if prices of the physical commodities stay at such levels.

Philippa Gee

Philippa Gee Wealth Management

Fund Pick: AXA Framlington Japan Smaller Companies

Why: If you were looking for a fund to represent a small part of your overall Isa portfolio and were comfortable with very high risk, I'd suggest AXA Framlington Japan Smaller Companies. Some believe Japan will always be a basket case, others that Japan's time to flourish is near. I tend to sit more with the sceptics, but if it does move forward, the smaller-cap side of the market will benefit the most over time.

The fund is managed by Chisako Hardie and what has impressed me is that, even in difficult economic conditions, she has delivered consistency and managed to limit the downside of markets. Ms Hardie has a good pedigree, having managed money at SWIP and Martin Currie before leading this fund from its launch in 2006. It's a small fund, at £22m, which keeps it nimble.

Alan Steel

Alan Steel Asset Management

Fund Pick: Jupiter European Emerging Opportunities

Why: Having twice read Ruchir Sharma's book on Breakout Nations – he's head of Global Macro at Morgan Stanley in NY – I'd have a go at Jupiter European Emerging Opportunities.

It is less than £300m in size and has underperformed Europe over three years, with positions in Russia and Turkey, and other holdings in Poland, Croatia etc. Russia has seriously underperformed, but if oil analysts at Ned Davis Research are right, oil will rise strongly as the world moves back to growth, and Turkey and Poland are tipped to be breakout nations. With Isas being free of Capital Gains Tax, this could deliver big returns – if not imminently, pretty soon.

Jason Hollands

BestInvest

Fund Pick: GLG Japan Core Alpha Equity D H GBP

Why: The wildcard market this year could be that perennial disappointer, Japan. Since its bull run of the Eighties came to an abrupt end, Japan has been decisively out of favour. It suffered from poor demographics, political gridlock (which has stalled much-needed reform), a deteriorating relationship with its ever more assertive neighbour (but key trading partner) China and the impact of natural disasters. The strength of the yen has also made it internationally uncompetitive.

One of the few benefits of the strong yen, however, has been to prompt international mergers and acquisitions (M&A) by Japanese corporates. In 2004, Japanese companies typically earned around 30pc of their operating revenues outside the country – now, that figure is more like 50pc. This makes them less exposed to some of the domestic challenges facing the country.

Of course, markets can stay cheap for a long time, unless there is a catalyst for a re-rating – but a radical change of policy involving an aggressive devaluation of the yen and other stimulus measures (following the recent elections), could propel the market materially higher. But as a sterling-based investor we think it makes sense to hedge our currency risk, so stock returns are not offset by currency depreciation.

GLG Japan Core Alpha Equity D H GBP is the FX-hedged version of GLG's Japan retail fund. Managed by Stephen Harker, the fund has an excellent long-term record versus the market but has underperformed over the past two years as it has a strong style bias to undervalued large companies which has been out-of-favour. This could be an interesting way to play a potential re-rating story: buy cheap shares in a cheap market.

Andy Parsons

The Share Centre

Fund Pick: Standard Life UK Equity Income Unconstrained

Why: Investors seeking additional income mainly still choose the historic stalwarts of the UK Equity Income sector, which have a significant weighting towards traditional core UK blue-chip income-producing stocks. However, this fund offers real portfolio diversification within that area.

Since Thomas Moore began managing the fund in January 2009, the portfolio has benefited from his fresh and thorough review. The fund is top quartile over both three- and one-year returns and is ranked second in its sector for the year to date.

The portfolio is made

up of large and mid-cap companies, with just over 50pc in the mid-cap arena. Although there are some familiar top holdings, the portfolio does not merely follow the herd – the

current top 10 holdings include Cineworld Group, Hiscox, Easyjet and Stagecoach Group.

With a yield of around 3.04pc, we feel the fund can provide real overall portfolio diversification for investors actively seeking additional income from the UK arena.

James Bateman

Fidelity Worldwide

Fund Pick(s) Allianz US Equity/Thames River Global Bond Fund

Why: The Allianz US Equity fund has had a difficult time over the past couple of years, as the manager's long-term focus on finding mispriced growth opportunities in the US market has not found favour with investors focused on stability and certainty of outcomes. But the longer-term track record is strong and Seung Min runs a very disciplined process – focused on finding solid franchises that have been overlooked or misunderstood by the market. As the recovery in the US market broadens out and solid franchises are more widely rewarded, the stored up value in this portfolio should start to come through for investors.

The Thames River Global Bond Fund suffered in 2012 when the majority of global bond funds posted positive returns. It follows a truly value-investing philosophy, looking for sustainable real yields in the global bond universe. The managers' views tend to play out in the long term, making this a fund suitable for patient investors.

Tim Cockerill

Rowan Dartington

Fund Pick: Invesco Perpetual Emerging European

Why: Emerging Europe has been off the radar for some time with investors, and this is not surprising given all the problems in core Europe. Emerging Europe and core Europe are, of course, closely linked and the debt crisis has had a knock-on effect. But now the ECB has essentially written a bailout plan for Spain, Italy or any other country in difficulty, confidence is returning.

At the centre of emerging Europe is Russia, the largest position in the Invesco Perpetual fund (69pc). It isn't without its challenges and the politics can be unpredictable, but it is a resource-rich country. Personal tax is just 13pc, which is good for consumers, and President Putin recently announced a $400bn investment in infrastructure.

The GDP forecast for 2013 is 3.6pc – less than China but much better than the UK and Europe as a whole – and the market is yielding 4pc on a price to earnings (P/E) ratio of 6:1, so it's cheap.

The other main area of investment for the fund is Poland, where 2013's GDP is expected to be around 1.5-2pc. The market is yielding 4.4pc and the P/E ratio is 10:1 – trumping the UK, France and Germany on growth, and cheaper too.

This fund is an asset allocation play on a recovery in Europe and the world, and the knock-on benefits to emerging Europe. Managed by Liesbeth Rubinstein, the fund has one of the best records for funds investing

in this region.

Ms Rubinstein seeks out companies that have strong balance sheets, good cash flow and operate in parts of the economy that are more robust and able to weather difficult conditions. At £36m, it's quite a small fund, but for investors wanting something unusual that is well placed for an improving global economy it's worth a look.

Darius McDermott

Chelsea Financial

Fund Pick: M&G Global Emerging Markets.

Why: The manager invests in any emerging market region and avoids stocks affected by political risk. He's a value investor and, contrary to what may people may think, value styles rather than growth tend to outperform in emerging markets. He has a consistent track record and does well in both rising and falling markets. Between 50 and 70 stocks are selected through strict bottom-up analysis, reflecting the manager's core beliefs that value creation, not economic growth, will deliver returns over the long term. He has 17 years experience at M&G and is backed by a well resourced team.

Most equity markets are still decent value, even after the new year rally. We may see a slight pull back in

the short term, but equities are expected to do well this year. With valuations so reasonable, now is a good time to get in for longer-term investors.

By Rosie Murray-West7:00AM GMT 26 Feb 2013

http://www.telegraph.co.uk/finance/personalfinance/investing/

Ashmore Assets Rise 9.1% in Fiscal Third Quarter on Investments

ridodirected@gmail.com (RIDO) — Thu, 12 Apr 2012 17:20:00 +0000

By Anne-Sylvaine Chassany - Apr 12, 2012 2:51 PM GMT+0800

Article from Bloomberg

Ashmore Group Plc (ASHM), a U.K. fund manager that invests in emerging markets, said assets under management increased 9.1 percent in the fiscal third quarter to $65.9 billion as markets advanced.

Net inflows from clients in the period added $1.2 billion to funds under management for the period ending March 31 and $4.3 billion came from investment performance, the London-based company said in a statement today. The firm said it is performing “in line” with management’s expectations.

“Consistent with Ashmore’s long standing investment approach of adding risk during periods of market volatility such as that experienced in our first half, all investment themes have subsequently delivered positive investment performance in what has been a strong third quarter,” Ashmore said in the statement.

Ashmore, which has almost half of its assets invested in emerging-market debt, has risen 16 percent in London trading this year. The firm’s flagship Emerging Markets Liquid Investment Portfolio (ASHEMLI) fund, with $3.9 billion of assets, is up 6.8 percent this year, according to data compiled by Bloomberg.

To contact the reporter on this story: Anne-Sylvaine Chassany in London at achassany@bloomberg.net;

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net;

Article from Bloomberg

U.S. Economy Expected to Grow 2.9 Percent over Next Year, According to BNY Mellon Mellon Capital Report Also Sees Japan, Australia Escaping Recession

ridodirected@gmail.com (RIDO) — Tue, 10 Apr 2012 20:04:00 +0000

April 10, 2012, 8:10 a.m. EDT

Article from Market Watch

NEW YORK, April 10, 2012 /PRNewswire via COMTEX/ -- The U.S., Japan and Australia are expected to escape recession over the next 12 months, with the U.S. economy now expected to expand by 2.9 percent over the period, according to the Spring Outlook report from Mellon Capital Management Corporation, part of BNY Mellon Asset Management.

Excluding the U.S., Japan and Australia, most developed countries are expected to experience a mild recession over the next year, with European countries at the highest risk, the report said.

"The U.S. economy is continuing to strengthen and we now put the probability of anemic U.S. growth at less than five percent," said Lex Huberts, president of Mellon Capital. "This is a significant improvement from September, when the probability was closer to 20 percent that the U.S. economy would grow at less than two percent over the next year."

Mellon Capital generates its own proprietary measure of leading economic indicators (LEI), with an LEI level of slightly less than 100 indicating, in Mellon Capital's view, a significant probability of a mild economic contraction. All major developed countries except the U.S., Japan and Australia currently have readings below 100. Southern peripheral countries in Europe have the lowest LEI, but France, Great Britain and Germany also appear weak, all below 99, signaling the likelihood of at least a mild recession, according to the report.

"Looking at our forward estimates of economic fundamentals, we are cautiously optimistic on stocks given the signs of economic recovery in the U.S., positive steps toward resolving the euro area debt crisis and the general stabilization of earnings forecasts in Europe," said Huberts. "However, tensions with Iran are a concern."

The report also notes that Mellon Capital is moderately positive on commodities, favors emerging markets equities and favors the Australian dollar and Canadian dollar among developed market currencies at this time.

Gabriela Parcella, chief executive officer of Mellon Capital, said, "We are seeing growing interest in our global asset allocation and alternatives strategies as institutions increasingly recognize the opportunities for investing in the current economic environment."

Notes to Editors:

Founded in 1983 by innovators in the investment management field, Mellon Capital Management Corporation applies a disciplined and analytical approach to global investment management strategies. As of December 31, 2011, the firm had $219.7 billion in assets under management, including assets managed by dual officers of Mellon Capital Management Corporation, The Bank of New York Mellon and The Dreyfus Corporation, and $8.5 billion in overlay strategies. Additional information about Mellon Capital is available at www.mcm.com . It is part of BNY Mellon Asset Management, one of the world's largest asset managers.

BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Asset Management can be found at www.bnymellonam.com .

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $25.8 trillion in assets under custody and administration and $1.26 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation BK -1.03% . Additional information is available on www.bnymellon.com or follow us on Twitter@BNYMellon.

All information source BNY Mellon Asset Management as of December 31, 2011. This press release is qualified for issuance in the US only and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Asset Management to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance.

A BNY Mellon Company(SM)

SOURCE BNY Mellon

Article from Market Watch

John Hancock Global Opportunities Fund (JGPAX) Portfolio Manager Christopher Arbuthnot Named Mutual Fund "Rising Star" by Institutional Investor

ridodirected@gmail.com (RIDO) — Sat, 07 Apr 2012 07:38:00 +0000

April 6, 2012, 2:21 p.m. EDT

Article from The Market Watch

BOSTON, April 6, 2012 /PRNewswire via COMTEX/ -- John Hancock Funds' portfolio manager Christopher Arbuthnot, CFA, was honored as a "Rising Star of Mutual Funds" for 2012 by Institutional Investor at the 19th annual Mutual Fund Industry Awards event, held last night in New York City. Mr. Arbuthnot, the lead portfolio manager for the John Hancock Global Opportunities Fund (JGPAX), is a Senior Managing Director and Senior Portfolio Manager with John Hancock Asset Management, a division of Manulife Asset Management.

The Rising Stars of Mutual Funds are chosen annually by the publishers of Institutional Investor and represent up-and-comers whose accomplishments in and contributions to the industry make them standouts among their peers, and position them as future industry leaders.

Mr. Arbuthnot provides research on technology, consumer, and global companies for all strategies managed by John Hancock Asset Management's Intrinsic Value team. He joined the Intrinsic Value Team in 2006, and assumed responsibility for the John Hancock Global Opportunities Fund in 2008. The Fund had more than $910 million in assets as of February 29, 2012, and as of that date had outperformed 99 percent of its peers in the Morningstar World Stock category year to date, 96 percent of its peers on a three-year basis, and 97 percent of its peers on a five-year basis. Bloomberg Markets Magazine ranked the Fund as one of the top 10 global equity funds in the U.S. in 2010 and 2011. The Fund invests in a diversified portfolio of global equities and seeks companies that are selling at discounts to their long-term intrinsic values. Also serving as portfolio managers on the John Hancock Global Opportunities Fund are Roger Hamilton and Timothy Malloy, both Senior Managing Directors and Senior Portfolio Managers.

"Chris Arbuthnot has a passion for stock-picking that is evident to anyone who speaks with him for more than five minutes," said Keith Hartstein, President and CEO of John Hancock Funds. "He is relentless in his global search for companies trading at a good value. He and his team dig in, do thorough analytical work and are not afraid to show their conviction when they believe in a stock. And as results show, he has been right a lot more than he's been wrong."

Prior to joining John Hancock Asset Management, Mr. Arbuthnot was an associate at Wachovia Securities. He began his career as an investment analyst at Middlebury Venture Partners. He holds a B.A. in economics from the University of Rochester, and an M.B.A. from the Kellogg School of Management at Northwestern University. Mr. Arbuthnot is a Chartered Financial Analyst.

Preceding Mr. Arbuthnot with this honor were Carey Foran Hoch and Andrew Arnott of John Hancock, who were named Rising Stars in 2008. Ms. Hoch is Senior Vice President and head of marketing for John Hancock Funds. Mr. Arnott is Executive Vice President of John Hancock Investment Management Services.

About John Hancock Funds

The Boston-based mutual fund business unit of John Hancock Financial, John Hancock Funds manages more than $66.3 billion in open-end funds, closed-end funds, private accounts, retirement plans and related party assets for individual and institutional investors as at December 31, 2011.

About Manulife Asset Management and John Hancock Asset ManagementManulife Asset Management(TM) is the global asset management arm of Manulife Financial. Manulife Asset Management provides comprehensive asset management solutions for institutional investors and investment funds in key markets around the world. Manulife Asset Management also provides investment management services to affiliates' retail clients through product offerings of Manulife and John Hancock. This investment expertise extends across a full range of asset classes including equity, fixed income and alternative investments such as real estate, timber, farmland, as well as asset allocation strategies.

Manulife Asset Management has offices with full investment capabilities in the United States, Canada, the United Kingdom, Japan, Hong Kong, Singapore, Taiwan, Indonesia, Thailand, Vietnam, Malaysia and the Philippines. In addition, it has a joint venture asset management business in China, Manulife TEDA. It also has operations in Australia, New Zealand, Brazil and Uruguay.

John Hancock Asset Management, Hancock Natural Resource Group and Declaration Management and Research are units of Manulife Asset Management. John Hancock Asset Management is a division of Manulife Asset Management that provides investment management services related to John Hancock products sold in the United States.

As at December 31, 2011 assets under management were Cdn$211 billion (US$208 billion). Additional information about Manulife Asset Management can be found at www.manulifeam.com .

Manulife Asset Management was named a 2011 'Bond Manager of the Year' finalist by Money Management Intelligence (MMI) in the United States and "Best Asia Bond House" by Asia Asset Management.

About John Hancock Financial and Manulife Financial Corporation

John Hancock Financial is a unit of Manulife Financial Corporation, a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. In 2012, John Hancock celebrates 150 years of serving clients across the United States, while Manulife celebrates its 125th anniversary. Operating as Manulife Financial in Canada and in most of Asia, and primarily as John Hancock in the United States, Manulife Financial Corporation offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were C$500 billion (US$491 billion) as at December 31, 2011. Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife Financial can be found on the Internet at manulife.com.

The John Hancock unit, through its insurance companies, comprises one of the largest life insurers in the United States. John Hancock offers a broad range of financial products and services, including life insurance, fixed and variable annuities, fixed products, mutual funds, 401(k) plans, long-term care insurance, college savings, and other forms of business insurance. Additional information about John Hancock may be found at johnhancock.com.

SOURCE John Hancock Funds

Article from The Market Watch

Financial institutions and investment funds should prepare now for FATCA

ridodirected@gmail.com (RIDO) — Wed, 04 Apr 2012 20:50:00 +0000

By Guest Contributor APRIL 4, 2012

Article from Reuters

By Steven D Bortnick, contributing author for Thomson Reuters Accelus

NEW YORK, April 4 (Thomson Reuters Accelus) – The enactment of the Foreign Account Tax Compliance Act (FATCA) as in March of 2010 has sent shock waves through financial institutions and investment fund management companies. FATCA aims to obtain information to prevent U.S. persons from evading taxation through the use of foreign entities. Although the law does not fully enter in force until January 1, 2013, the effort to become compliant with FATCA should begin immediately. Some tips on how to do so are noted below.

The legislation is the direct result of the events that led to UBS’ admission that it helped U.S. taxpayers evade U.S. income tax on U.S.-source income. While the goal is the increased collection of tax, the intention is not to create any new tax. FATCA’s goal is accomplished by adding an entirely new chapter to the Internal Revenue Code devoted to due diligence, reporting and withholding. Failure to comply will result in withholding tax at the rate of 30 percent, including withholding on items understood not to be taxable in the hands of foreign persons. While the proposed regulations reduce the burden that initially may have been expected, especially through reduced due-diligence requirements, FATCA compliance still will be an involved and costly process for many financial institutions and investment funds. To the surprise of many, when the proposed regulations were issued, so was a joint statement from the United States, United Kingdom, France, Germany, Italy and Spain regarding an intergovernmental approach to improving international tax compliance and implementing FATCA. These countries have agreed to enact legislation to enforce FATCA and increase tax compliance among the various countries.

FATCA IN GENERAL TERMS

FATCA generally divides the universe of foreign entities into two broad categories: foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs). A withholding agent (generally anyone who has control of payments, including participating FFIs) must withhold tax at 30 percent on any “withholdable payment” to an FFI, unless such FFI is a “participating FFI.” A participating FFI is an FFI that has reached an agreement with the Internal Revenue Service (IRS) to obtain certain information, provide certain information to the IRS and withhold on certain payments. These requirements are discussed further below.

A withholding agent must withhold tax at 30 percent on any withholdable payment to an NFFE, unless the NFFE: (a) certifies that it has no U.S. investors that own 10 percent or more of such NFFE or (b) identifies U.S. investors that own 10 percent or more of such NFFE.

IS PAYMENT MADE TO AN FFI?

The characterization of an entity as an FFI or NFFE has the most critical impact on the obligation of a withholding agent with respect to payments made to the entity, as well as the recipient entity’s obligations under FATCA. An FFI is a foreign entity that:

Accepts deposits in the ordinary course of a banking or similar business;
Realizes at least 20 percent (over a rolling 3-year period) of its gross income from holding financial assets for the account of others;
Realizes at least 50 percent (over a rolling 3-year period) of its gross income from investing, reinvesting or trading in securities, partnership interests, commodities, notional principal contracts, insurance or annuity contracts or interests (including forwards) therein (or holds itself out as such an entity); and
Is an insurance company or the holding company of one.

This broad definition is designed to pick up investment funds, including mutual funds, private equity funds, venture capital funds and hedge funds.

WHO IS IN THE FFI’s EXPANDED AFFILIATED GROUP?

All members of the Expanded Affiliated Group (EAG) must be either participating FFIs or deemed compliant, or all members may be subject to withholding. The EAG generally is a group of companies connected by greater than 50 percent ownership. For this purpose, various constructive ownership rules apply. Moreover, the EAG may include non-corporate entities. Based on the current drafting of the proposed regulations, an EAG may consist entirely of non-corporate entities.

The proposed regulations contain a transition rule. Participating FFI groups can have members that cannot meet the requirements because of the application of local law (a limited branch) through 2015. However, at least one member of the EAG must not be subject to the rules that prevent compliance (even if it is U.S.), and the limited branch must conduct due diligence and identify U.S. persons to FFIs that are not limited branches. The participating FFIs that are not limited branches must report information about U.S. accounts to the IRS to the extent permitted under the law of the branches’ jurisdiction.

BECOMING A PARTICIPATING FFI

To avoid 30 percent withholding, an FFI must enter into an agreement with the IRS to comply with certain requirements. These agreements will require the participating FFI to:

Obtain information designed to enable the FFI to identify accounts held by U.S. persons or foreign persons with significant U.S. owners;
Conduct due diligence specified in the proposed regulations;
Report annually certain information with respect to U.S. accounts;
Deduct and withhold a 30 percent tax on other FFIs that have not entered into such agreements, so-called recalcitrant holders and other FFIs that have elected to have tax withheld rather than handle such withholding themselves;
Comply with IRS information requests; and
Attempt to obtain waivers of bank secrecy/privacy limitations or close U.S. accounts.

Draft model FFI agreements are supposed to be available in early 2012, with final models available in the fall. The IRS has indicated that online registration will be available by January 1, 2013. FFIs generally must have completed the process by June 30, 2013, or risk not having their FFI-EIN (the identification number that withholding agents will need to receive to remit withholdable payments without withholding) in time to avoid withholding.

FFI DUE DILIGENCE

FFIs must perform due diligence to determine their U.S. account holders. The proposed regulations limited due diligence to electronic records for account balances under $1,000,000. Moreover, due diligence generally is not required with respect to preexisting accounts with values under $50,000 ($250,000 for preexisting entity accounts with no additional diligence required until the account reaches $1,000,000) or for insurance policies with values with a value not greater than $250,000. The proposed regulations also provide for cases with FFIs may rely on their existing account opening procedures (i.e., know your client or anti-money laundering) for identifying U.S. accounts.

WITHHOLDING OBLIGATIONS

Participating FFIs will be required to withhold on certain payments to non-participating FFIs, recalcitrant holders (i.e., holders who refuse to provide information required by the FFI under the proposed regulations or who refuse to waive provisions of foreign law that would preclude reporting to the IRS) and participating FFIs that elect to be subject to withholding rather than withhold. Withholding obligations begin in 2014 (2015 for gross proceeds and 2017 for certain payments of foreign passthrough payments, discussed below).

Participating FFIs are themselves withholding argents. A participating FFI also has to comply with its FFI agreement with respect to withholding obligations with respect to withholdable payments made to NFFEs.

WHAT IS A WITHHOLDABLE PAYMENT?

An FFI’s withholding obligations (discussed above) apply to withholdable payments. Withholdable payments are:

U.S. source fixed or determinable annual or periodical income (FDAP), such as interest and dividends;
Gross proceeds from the sale or disposition (in a taxable transaction) of any property that produces U.S. source interest or dividends.

The proposed regulations exclude many types of U.S. source FDAP from the definition of withholdable payments, including:

Interest or original issue discount on short-term obligations;
Income that is effectively connected to a U.S. trade or business; and
Payments made in the ordinary course of business (including interest on payables from the acquisition of nonfinancial services or goods).

Withholdable payments also include foreign passthrough payments. The Proposed Regulations are reserved as to the meaning of this term. The intention is to prevent the avoidance of withholding on distributions that are themselves foreign source, where they relate to U.S. source income.

REPORTING

FFI’s will be required to report identifying information and account balances or values for U.S. accounts and recalcitrant holders beginning September 30, 2014, and annual reporting for reportable amounts beginning March 15, 2015.

IS THE FFI DEEMED COMPLIANT?

FFIs can avoid 30 percent withholding if they are deemed compliant. Registered deemed compliant FFIs still must perform diligence to identify U.S. accounts, and must register with the IRS. Registered deemed compliant FFIs are:

Local FFIs: These are FFIs that are licensed and regulated in their country of organization as banks or similar organizations, securities brokers or dealers, financial planners or investment advisors. They must not be investment funds, must have no place of business outside their country of organization and not solicit account outside their country of organization. Ninety-eight percent of their accounts must be local, and local tax laws must require information reporting or withholding.
Qualified collective investment vehicles: These are entities that are FFIs solely because they are investment funds and must be registered as such in their country of incorporation. Moreover, each holder of debt or equity in such entity in excess of $50,000 must themselves be participating FFIs, registered deemed compliant FFIs, U.S. persons or exempt beneficial owners.
Restricted funds: These are entities that are FFIs solely because they are investment funds and must be regulated as such in their country of incorporation. These funds generally must exclude U.S. persons, non-participating FFIs and passive NFFEs with one or more 10 percent U.S. owner, and be distributed by a limited group of distributors.
Non-reporting members of participating FFI groups: These members must take steps to avoid having any U.S. accounts.
FFIs deemed compliant by intergovernmental agreement.

Generally, requirements applicable to be a registered deemed compliant FFI must be satisfied by all members of the FFI’s EAG. Registration must be renewed every three years.

Certified, compliant FFIs must certify that they are compliant to withholding agents, but need not register with the IRS. These organizations are:

Non-registering local banks – These are banks licensed in their country of organization and which have no fixed place of business outside such country, do not solicit account holders outside their country of organization and have no more than $175 million in assets ($500 million among all members of an EAG). Additionally, the FFI must be required under the tax laws of their country in which they are organized to perform information reporting or withholding on resident accounts (or all accounts maintained thereby are no more than $50,000).
Retirement funds – An entity organized for the provision of retirement or pension benefits under the law of the country in which it is established and satisfying certain other rules.
Nonprofit organizations established and maintained in its country of residence exclusively for religious, scientific, artistic, cultural or educational purposes, which are exempt from tax in their country of residence and which satisfy certain other rules.
FFIs (other than investment funds) that maintain no financial account (together with each member of its EAG) with a balance in excess of $50,000, and which have (together with the rest of its EAG) no more than $50,000,000 in assets.

In addition, certain FFIs are treated as deemed compliant with respect to payments from withholding when they agree to report to the IRS all the necessary information and to which the FFI provides with all of the necessary documentation.

FATCA COMPLIANCE BEST PRACTICES

Although FATCA does not fully enter into force until January 1, 2013, work to become compliant with FATCA should begin immediately. Here is a list of the things that persons responsible for FATCA should begin doing immediately.

Determine whether their company is an FFI.
Determine the members of their company’s Expanded Affiliated Group, and determine if any of those entities are FFIs.
Determine whether any members of the EAG may be registered deemed compliant or certified deemed compliant FFIs. In this regard, consider whether by transferring client accounts to affiliates may enable certain members of the EAG to be deemed compliant. This exercise could substantially cut down the number of FFI agreements into which the EAG may have to enter.
Consider whether the EAG’s systems and procedures are sufficient to enable each member of the EAG to comply with the requirements to be set forth in FFI agreements (as described in the proposed regulations and when the model FFI agreements are released in the near future), and update these systems and procedures to permit compliance.
Update offering documents, marketing materials, subscription materials, account opening documents, etc., to ensure that:

members of the EAG obtain sufficient information to comply with FFI agreements from account holders;
the documents permit any FATCA holding with respect to recalcitrant holders and non-participating FFIs may be withheld from payments due to those holders;
holders and potential holders are aware of the fact that their identities and account information may be disclosed to the IRS, the information they need to provide and the fact that the FFIs will withhold on payments if they fail to comply;
they contain any statements required in order to comply with deemed compliant requirements (e.g., in certain cases that no U.S. person may hold an account in the FFI);
these documents permit the FFI to close the account/redeem recalcitrant holders as required by FATCA.

If the FFI is an intermediary or flow-through entity, such as a partnership, consider whether the FFI should be a qualified intermediary (QI) or withholding foreign partnership (WFP). There are costs and additional requirements associated with each of these, but whether such an FFI is a QI or WP impacts which entity (the FFI or withholding agent with respect to payments to the FFI) is required to withhold.
Determine the information/documents that account holders must provide to the FFI in order for the FFI to comply with its FFI agreement, including waivers of privacy and similar laws. The IRS will have to begin to issue FFI-EINs and updated W-8s before FFIs can start collecting the required information. Note as well that France, Germany, Italy, Spain and the United Kingdom (as well as others in the future) will be enacting legislation to help implement FATCA compliance and deal with internal laws that otherwise would preclude disclosure. FFIs in these countries will not be required to enter into FFI agreements, but will provide the required information directly to the tax authorities of such countries. Nevertheless, the diligence to be done with respect to financial accounts and the information to be disclosed is expected to be the same or similar.
Determine the information/documents that their company will have to be provided to entities from which withholdable payments may be received to avoid FATCA withholding.
Determine whether entities from which payments may be received will be FATCA complaint. If payments ultimately bound to the company are routed through an FFI that is non-participating, will be subjected to 30 percent withholding.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete (http://accelus.thomsonreuters.com/solut ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)

Steven D. Bortnick is a partner in the Tax Practice Group of Pepper Hamilton LLP.

Article from Reuters

These two alternatives funds come with beta blockers

ridodirected@gmail.com (RIDO) — Mon, 02 Apr 2012 20:19:00 +0000

New offerings from Stadion aim to generate equity-like returns with fixed-income-like volatility

April 2, 2012 11:55 am ET

Article from Investment News

Stadion Money Management is making a bigger play in the alternative-investment space with an intriguing new strategy that's designed to prosper in just about any market environment.

The Stadion Trilogy Fund (STTGX) is one of two new mutual funds launched today by the $5.5 billion asset management firm. As the name suggests, the Trilogy fund is a three-part, blended portfolio designed to produce absolute returns annually —with an emphasis on keeping risk and volatility lower than the U.S. equity markets. The fund has a 40% allocation to stocks, 40% to fixed income, and 15% to 20% dedicated to a trend-following strategy using options and other financial instruments.

“We want two of three components working in any market environment,” said portfolio manager David Purcell.

The equity portion is represented by about 40 blue-chip, dividend-paying stocks or exchange-traded funds. This part of the strategy applies an option collar that limits downside and caps upside. The equity exposure provides broad market performance with dividend income.

The fixed-income slice of the portfolio also uses options to generate additional income, while using the bonds as collateral to eliminate the need for margin loans. This option-income tranche is expected to perform best during calmer or flat markets, according to Mr. Purcell.

Finally, the trend component will attempt to profit from large price changes and trending equity markets.

The application of options and other financial instruments is designed to enhance upside and limit losses. The fund should perform best in longer-term up and down-trending markets.

“It's a very systematic strategy, because we realize it is difficult to predict the markets,” Mr. Purcell said. “We're trying to get equity-like returns with fixed-income-like volatility.”

The company also launched the Stadion Olympus Fund (STOAX), a tactical international fund that has the flexibility to maintain all-or-nothing equity exposure.

“We know that investors sometimes underinvest in international stocks because of the volatility,” said Brad Thompson, Stadion's chief investment officer.

“There is a very strict sell discipline behind this model,” he added.

The Olympus fund, which invests in ETFs, uses the same three-step selection process as Stadion's managed portfolio, which includes investing during favorable conditions, investing only in category leaders and managing exposure to reduce risk.

“We place sell criteria underneath each ETF in the fund,” Mr. Thompson said.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.

Article from Investment News

New Invesco CIO backs contrarian investing style

ridodirected@gmail.com (RIDO) — Sun, 01 Apr 2012 09:02:00 +0000

By Sophia Grene

Article from ft.com

Nick Mustoe’s position does not appear an enviable one, but he seems very comfortable in it. Mr Mustoe is the second chief investment officer Invesco Perpetual has ever had, stepping into the shoes of Bob Yerbury after an extended handover period, and with Mr Yerbury staying on as a senior managing director.

Not only does he have a popular and successful predecessor peering over his shoulder, Mr Mustoe must also manage one of the biggest names in UK fund management, Neil Woodford, Invesco Perpetual’s head of investment and manager of its flagship UK equity income funds.

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With all this set against a backdrop of “turbulent financial markets and a global economic environment shrouded in gloom”, Mr Mustoe might be forgiven for being a bit downbeat. Instead he is cheerful and optimistic about the challenges facing him, even dismissing some as trivial or non-issues.

“Coming here has been all about the people. Cultural fit and how you work is the most important thing in terms of being successful and being happy,” he says. He explains that before joining Invesco Perpetual in 2010, having previously been CIO at Pictet Asset Management, they had “quite a long courtship”, during which he recognised a similar investment philosophy to his own, key precepts being valuation, being prepared to take big views and acting as a long-term investor.

This focus on investment philosophy is in keeping with his view of the role of CIO, which he sees as having three aspects: “You’re an investor, a team manager and a business person, with the investment hat always the most important.” In the context of Invesco Perpetual, this means Mr Mustoe sits on the same open plan floor as the rest of the fund managers, is part of the global equities team and continues to run money himself. That is the investment side, which also involves lending support to fund managers with more than usually contrarian views.

Invesco Perpetual’s fund managers are traditionally not given to following the herd – as far back as 1999, when Neil Woodford refused to jump on the technology bandwagon, it has marched to the sound of its own drum. The most recent example was the launch of a fixed income fund investing in financial institutions in January.

This was the “brainchild” of IP’s veteran fixed income managers Paul Causer and Paul Read, with Mr Mustoe backing them (and indeed co-managing the fund’s equity allocations). It is the development of an investment idea they have been germinating for some time as they saw financial companies being sold off to levels well below what they saw as fair value.

“The two Pauls came in for a lot of stick at the end of last year for investing in financials in their bond fund,” says Mr Mustoe, but so far it looks like a good decision. “The new fund has already gone up a lot but it’s a long story” which will play out in the years ahead as banks recapitalise.

“You have to hold your nerve. That’s the role of a good CIO – to support the team when we take views like this.” This contrarianism is made easier by the group being based in Henley, some 50km outside London. The fund managers are a little removed from the “noise and emotion” of the markets, says Mr Mustoe.

He likens the second aspect of the CIO role to that of a football manager: “You have a number of stars and you have to help them play better, but you’re not going to tell them how to kick the ball into the back of the net.” In other words, his job is to improve their performance by making the team work better rather than by micromanaging.

While the fund managers are given a great deal of leeway to follow their convictions, with relatively concentrated portfolios that are not expected to track benchmarks closely, in return they have to undergo an annual CIO challenge, a process whereby their portfolios and investment decisions are subject to intense scrutiny and they are expected to defend them.

This process is intended to ensure managers are continually striving to improve performance, but it also serves to weed out any that are failing to deliver. This is not a swift process, says Mr Mustoe, “you give them a sensible time frame, but there is a finite run of time”. A couple of fund managers have been asked to leave “because the numbers didn’t add up”.

Where teams are doing well, Mr Mustoe is likely to expand them, however. The fixed income team has seen additional analysts, marketing and support personnel added recently, as Messrs Causer and Read have extended their reach. Their Global Bond Fund has delivered annual compound growth of 8.39 per cent over the past five years, compared with 7.38 per cent for its peer group.

While Mr Mustoe sees his business management role as important in the context of a relatively flat management structure, with just three people including himself overseeing the running of IP on a day to day basis, he sees his function on the executive committee as ensuring that “investment is the absolute priority of everything we do”.

With a relatively narrow fund range, IP’s business is “very simple – it’s all driven by investment results”, he says. He is quite satisfied with how the funds have performed in the past two years. Mr Woodford’s High Income Fund has grown at a rate of 3.43 per cent a year over the past five years, which does not sound impressive until you look at its peer group, which delivered a 0.19 per cent annual return over the same period. This means it comfortably beat its benchmark, the FTSE All Share Index.

“We’re not trying to promise something that can’t be delivered,” says Mr Mustoe. “We don’t promise absolute [returns], we don’t promise low volatility.” Instead the offer is of a positive return for investors prepared to stick it out over a three to five-year period.

As for the difficult investment environment, Mr Mustoe is gloomy about the global economic outlook, but upbeat about the opportunities for his team. “There are a lot of places we can find to make money.” The recent move away from equities to fixed income by risk averse investors has created a huge opportunity, he says, as stocks are at 30 or 40 year lows in terms of metrics such as their price-earnings ratios. “I always get interested when I hear that.”

.......................................................................

Curriculum Vitae: Nick Mustoe

Born: 1961

Education

19XX

Bradford University (BA Business studies)

Career

1985

Director and fund manager, Phillips & Drew Fund Management

1996

Head of equities, Prudential Portfolio Managers

2000

Head of equities, F&C London

2002

Chief investment officer, Hermes Pensions Management

2006

Chief investment officer, Pictet Asset Management

2009

Sabbatical

2010

Chief investment officer, Invesco Perpetual

.......................................................................

Invesco Perpetual

Established: Perpetual founded 1973, merged with Invesco 2000

Assets under management: £56.8bn as at 31st December 2011

Number of employees: around 800 in the UK

Head office: Henley-on-Thames

Ownership: Invesco Perpetual is part of Invesco Ltd

Article from ft.com

Big money funds' fees outpace investor returns

ridodirected@gmail.com (RIDO) — Fri, 30 Mar 2012 04:11:00 +0000

Article from Reuters

By Tim McLaughlin

BOSTON | Thu Mar 29, 2012 3:43pm EDT

(Reuters) - The biggest U.S. money market funds have done a better job of preserving their management fees than many realize, a development that may surprise investors whose dividends have plummeted 96 percent from peak levels five years ago.

Investors collected $5.24 billion in total dividends from money funds in 2011, a 72 percent decline from $18.6 billion two years earlier and a huge plunge from the $127.9 billion gained back in 2007, before the Federal Reserve chopped short-term rates to near zero.

In contrast, the fees collected by money fund sponsors declined to $4.7 billion last year, a 57 percent drop from 2009 and a 52 percent decline since five years earlier, according to data from the Investment Company Institute, the trade group for the fund industry.

The biggest retail funds in the industry did even better, showing fee declines of less than 25 percent since 2009.

"Many sponsors have seen a drop in management fee income - however, not nearly on the level that investment income for investors has declined," said Scott Sullivan, a senior analyst at research firm Celent.

The big players have demonstrated plenty of resiliency in even the most trying market conditions, said Pete Crane, who runs research firm Crane Data. Large funds, which generate far more in fees than are needed to pay for their managers, credit analysts and other expenses, have enormous economies of scale, he said.

"The money fund industry has yet to see any real consolidation or the exodus of a major player," Crane said. "If the pressure were that acute, you would see fees being introduced."

While most of the decline in dividends has resulted from lower rates and fees absorbing a larger proportion of fund income, total assets in money funds have declined 13 percent over the past five years.

SMALLER FEE DECLINE

At Fidelity Investments, for example, the giant $116.6 billion Fidelity Cash Reserves generated at least $200 million in annual management fees in each of the past three fiscal years, which end on November 30. Over that time, the annual fee declined only 21 percent while net investment income for investors tumbled 98 percent.

Fees also absorbed a much greater proportion of available income last year. The fund's management fee was $203.6 million in fiscal 2011, or nearly 12 times more than the $17.2 million in net investment income designated for investors.

In fiscal 2009, it was a different story for investors. They received nearly $1.1 billion in net investment income, four times more than the fund's management fees of $258.2 million, the fund's regulatory filings showed.

Fidelity's fund is managed by a group of professionals out of a modest office in Merrimack, New Hampshire, about 60 miles north of the firm's Boston headquarters. The fund lists only a single manager, Robert Litterst, a 20-year Fidelity veteran and the chief investment officer for money markets.

Fidelity, the largest money market fund manager in the United States, said the fund's management fee expense ratio of about 17 basis points has been less than 90 percent of its closest peers in recent years. The company's money market business is designed to handle extended periods of low interest rates, spokesman Vincent Loporchio said.

"Fidelity takes a long-term view of our money market fund business and meeting customer needs," Loporchio said.

Much the same was true at Vanguard Group's Prime Money Market Fund, the No. 2 retail fund with $114 billion in assets. Over the past three fiscal years, the fund's management and administrative fees declined by 23 percent to $154 million while net investment income for investors shrank by 94 percent, from $1.45 billion to $90.5 million.

Ultra-low interest rates are at the root of the diminished income for investors, a Vanguard spokeswoman said.

MOST WAIVE FEES

Still, nearly every money market fund is forgoing a portion of the fees they could collect based on their contracted expense rates in order to keep yields in positive territory, according to fund tracker iMoneyNet Inc.

In the fourth quarter, 98 percent of all taxable funds waived at least some fees, compared with 66 percent in the same period of 2008, iMoneyNet said. Money fund fee waivers for the industry topped $5.2 billion in total last year, compared with $3.6 billion in 2009. Not all of the waivers represent lost income for fund managers as some of the money would have been paid out to brokers and distributors.

Big players such as Fidelity, Federated Investors Inc., JPMorgan Asset Management and Vanguard that have weathered the low-rates storm better are poised to make further gains as expected regulatory reform will force consolidation, analysts said.

"Economies of scale will contribute to a larger percentage of money market assets in the hands of fewer fund sponsors," Celent's Sullivan said.

(Reporting by Tim McLaughlin; Editing by Aaron Pressman, Walden Siew, Gary Hill)

Article from Reuters

Northern Trust Finds Majority of Fund Managers Have Considered the Impact of the RDR, But Are Divided over the Greatest Challenges for Implementation

ridodirected@gmail.com (RIDO) — Tue, 27 Mar 2012 20:59:00 +0000

March 27, 2012, 8:23 a.m. EDT

44 percent of those surveyed saw RDR as positive, while 33 percent were indifferent

Article from MarketWatch

LONDON, Mar 27, 2012 (BUSINESS WIRE) -- Northern Trust NTRS -0.88% today shared the results of a survey conducted among 30 of its fund manager clients attending a recent breakfast workshop entitled “Are you ready for the UK Retail Distribution Review”.

The event, which discussed the potential implications and opportunities for the UK funds market, was held at Northern Trust’s Canary Wharf offices and attended by selected Northern Trust fund manager clients across the UK and Ireland who will be affected by the Retail Distribution Review (RDR).

RDR focuses on independent financial advisers and platforms, although all fund managers will need to review their product offering and make changes to accommodate the regulation, which is due to radically change the FSA’s Conduct of Business rules. From 2012, commissions on product sales will be prohibited and, instead charges for the advice provided to the client by the advisor must be agreed and paid for by the client. This means a client can opt to pay for the advice independently of the product or from the product itself, radically affecting fund managers.

“The RDR, due to come into force 31 December 2012, will affect any fund distributed in the UK to retail investors, with managers needing to consider their distribution channels, asses changes and determine what services they want to offer to IFAs and investors,” said Karen Hamilton, head of fund administration product development (EMEA), at Northern Trust. “Fund promoters will, as a result, need to assess the impact to their distribution chain, as well as any required technology enhancements and potential changes to their distribution strategy and fund range.”

“While it seems clear that the majority of fund managers we surveyed (74 percent) have considered the impact of RDR and are actively working on adapting their business’ accordingly, they see a diverse number of challenges affecting the implementation of the RDR,” she added.

Share classes and pricing

Respondents expressed concerns around share class launches and the inconsistency between the UK and European (where commission can still be charged) share class models. Sixty eight percent planned to launch 1-3 additional share classes, while 21 percent said they were not planning on any new launches.

While 60 percent of respondents envisaged their pricing model for clean-fee share classes (called for under RDR) would be between 75bps-100bps, 25 percent still remained undecided and listed reviewing the level of charging on existing share classes and pricing models, a challenge.

Platforms

Around 56 percent of respondents envisaged an increase in the amount of business through distribution platforms, but saw keeping them happy as a challenge, alongside tracking trail commission and the issues of rebate fees.

“There is no doubt that fund promoters need to start planning their response to the RDR now in order to capitilise on opportunities presented in a rapidly changing investment market,” said Hamilton. “At Northern Trust, we can support our clients with the RDR, helping them launch new share classes, re-register platform holdings, calculate unit rebates, and maintain their legacy business.”

Northern Trust’s Global Fund Services business provides custody, fund administration, investment operations outsourcing, and ETF solutions to investment managers across the globe and across the spectrum of asset classes. It is actively working with all its fund manager clients to support their changing requirements, in line with regulatory change and developments.

About Northern Trust

Northern Trust Corporation NTRS -0.88% is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2011, Northern Trust had assets under custody of US$4.3 trillion, and assets under investment management of US$662.9 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.

The material within and any linked material accessed via this communication is directed to eligible counterparties and professional clients only and should not be distributed to or relied upon by retail investors. For Asia Pacific markets, it is directed to institutional investors, expert investors and professional investors only and should not be relied upon by retail investors.

Northern Trust (Guernsey) Limited, Northern Trust Fiduciary Services (Guernsey) Limited, and Northern Trust International Fund Administration Services (Guernsey) Limited are licensed by the Guernsey Financial Services Commission. Northern Trust International Fund Administrators (Jersey) Limited and Northern Trust Fiduciary Services (Jersey) Limited are regulated by the Jersey Financial Services Commission. Northern Trust International Fund Administration Services (Ireland) Limited, Northern Trust Securities Services (Ireland) Limited and Northern Trust Fiduciary Services (Ireland) Limited are regulated by the Central Bank of Ireland. Northern Trust Global Services Limited has a Luxembourg Branch, which is authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF). Northern Trust Luxembourg Management Company S.A. is regulated by the Commission de Surveillance du Secteur Financier (CSSF). Northern Trust Global Investments Limited has a Netherlands branch, which is authorised by the Financial Services Authority and subject to regulation in the Netherlands by the Autoriteit Financiele Markten. Northern Trust Global Services Limited has a Netherlands Branch, which is authorised and regulated in the Netherlands by De Nederlandsche Bank. Northern Trust Global Investments Limited has a Sweden branch, which is authorised by the Financial Services Authority and subject to regulation in Sweden by the Finansinspektionen. Northern Trust Global Services Ltd (UK) Sweden Filial is authorised by the Financial Services Authority and subject to regulation by the Finansinspektionen. Northern Trust Global Services Limited operates in Abu Dhabi as a Representative Office. Our registered office is authorised and regulated by the Central Bank of the United Arab Emirates. The Northern Trust Company operates in Australia as a foreign authorised deposit-taking institution (foreign ADI) and is regulated by the Australian Prudential Regulation Authority. The Northern Trust Company has a branch in China regulated by the China Banking Regulatory Commission. The Northern Trust Company of Hong Kong Limited is regulated by the Hong Kong Securities and Futures Commission. Northern Trust Global Investments Japan, K.K. is regulated by the Japan Financial Services Agency. The Northern Trust Company has a Singapore Branch, which is a foreign wholesale bank regulated by the Monetary Authority of Singapore. The Northern Trust Company operates in Canada as The Northern Trust Company, Canada Branch, which is an authorised foreign bank branch under the Bank Act (Canada). Trustee related services in Canada are provided by the wholly owned subsidiary The Northern Trust Company, Canada, an authorised trust company under the Trust & Loans Companies Act (Canada). Deposits with The Northern Trust Company and its affiliates and subsidiaries are not insured by the Canada Deposit Insurance Corporation.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice, see http://www.northerntrust.com/circular230 .

SOURCE: Northern Trust

EMEA Contacts:

Camilla Greene, +44 (0) 207 982 2176

Camilla_Greene@ntrs.com

US, Canada & APAC Contacts:

John O’Connell, +1 312 444 2388

John_O'Connell@ntrs.com

Article from MarketWatch

Asset management fees need to come down: Joseph Cherian

ridodirected@gmail.com (RIDO) — Sun, 25 Mar 2012 20:08:00 +0000

Interview with Director at CAMRI, National University of Singapore
Chandan Kishore Kant & Mehul Shah / Mumbai Mar 26, 2012, 00:03 IST
Article from Business Standard

The fees charged by active asset managers are exorbitant and need to come down,says Joseph Cherian, Director at CAMRI, National University of Singapore. Cherian, who was in Mumbai last week to attend a conference on Future of Financial Markets organised by Financial Technologies, believes if there is adequate transparency and fee structures are right, India will be a major player in the retail mutual funds space. Edited excerpts from an interview with Chandan Kishore Kant & Mehul Shah:

Why do you think the fee structure of asset managers is exorbitant across the world?

The fee structures for active management, where you have a manager doing a long-only strategy of picking stocks and charging a fee for it, is way too high. We have management fee structures in excess of one per cent, which has to come down. Most hedge funds charge two per cent management fees and 20 per cent performance fees. Again, that’s too high. Fees need to be much lower than what they are right now. It’s true for Asia, it’s true for the US and I am sure it’s true for India, too. There should not be any hidden fees, because average investors are not able to understand.

After the Indian capital markets regulator abolished entry load on equity funds, the country's fund industry is struggling to increase its penetration level as distributors are unwilling to push products. In your view, how should industry reach out to investors?

There are two ways one can do this before bringing in a third-party distributor. Deploy technology and internalise the whole distribution system. India is at the forefront of technology and advancements made are amazing. Fund houses should find ways to bring up these technologies on online platforms.

Some mutual fund companies in the US have their own distributors. If you are charging a fee, say one per cent, it should include all your distribution fees.

These distributors have access to portfolio managers and know the companies' products well and they can explain. So, these people are not your sales people but product specialists. It's a bit expensive. But, third-party distributors are more expensive and people sell products of those who pay more fees.

In comparison to what ETFs (exchange traded funds) charge globally, Indian investors are charged more. Is that justified?

It depends on what kind of ETFs are sold. If you are investing in ETFs through the systematic investment plan (SIP), one does not need to charge more than five basis points. If you go into more illiquid space you need to charge more because it takes more work. Because often you cannot replicate the full index. Then, the institution is taking more risk. But, ETFs are the cheapest way to enter the market. For instance, in India, Nifty is a very liquid index. So, Nifty ETFs are good options. Fund managers should not charge more for such a plain vanilla product.

There are around 45 players in the Indian fund industry. Is there a need for so many players?

In Singapore, retail distribution is less successful and it never took off big time, while in Hong Kong it is doing big business. So, it depends on the investing public. The other thing is there needs to be lot of patience. There is no doubt in my mind, assuming there is adequate transparency and fee structures are right, that India will be a major player in the retail mutual funds space.

There is huge potential in India as savings are going up. So, the surplus amount needs to be put in high-risk assets.Fewer players but good players is more important than just numbers. I think, several emerging economies fall in the trap of becoming a financial centre and start inviting more people by liberalising, and that way no one gets their share of the pie. I think India-born firms with the expertise and knowledge can actually build up the pie because they understand the geography and culture, and they know how to penetrate.

Why do you think products like inflation-index bonds are necessary in India?

Inflation is a problem, not just when it’s high. It’s also a problem when it’s low. Let’s say, my subsistence level of living is about $50,000 a year today. I want to make sure I have that $50,000 a year, in real terms, 30 years from now. What’s the best way to do that? Put $50,000 in discounted terms in an inflation-index bond, then 30 years from now, that inflation-index bond gives me exactly $50,000. It’s called asset-liability management at the personal level. The average person who doesn’t have surplus funds, needs some kind of a guarantee that he will be able to pay for his future needs. To do that, one needs inflation-index bonds to be issued.

Article from Business Standard

10 Investors' Stocks Beating the Market

ridodirected@gmail.com (RIDO) — Fri, 23 Mar 2012 21:02:00 +0000

3/23/2012 @ 7:57AM
Article from Forbes

The financial-services sector, and asset managers in particular, has come roaring back this year amid signs of economic growth and an apparent resolution of the sovereign debt crisis in Europe.

The positive outlook from investors has also renewed confidence in asset management firms, which are benefiting from higher trading volume and money inflows to their funds this year, even as they battle to stanch the run-off of the past few years to inexpensive, passively managed index funds or exchange traded funds after several years of funds’ underperformance.

As a result, the leading asset management companies’ stocks are posting double-digit gains in 2012.

Shares of companies in the asset management company category, as tracked by Morningstar, are up an average of 19% this year, versus the benchmark S&P 500′s 12% gain. Two of the biggest fund management firms, Vanguard Group and Fidelity Investments, aren’t publicly traded.

On Friday, S&P Capital IQ upgraded the asset management and custody banks sector to “positive” from “neutral” because “so far this year, fund flows have done a turnaround with new investments coming into long-term funds.

“We observe a shift in investor sentiment toward the positive as many 2011 fears have been put to rest or at least tempered.”

The Investment Company Institute reported investor inflows to bond and equity funds of $35.6 billion in January, the first positive month of inflows after outflows over the last seven months of 2011.

That trend picked up speed in the following six-week period with inflows of $59.6 billion through the first week of March.

But bond funds are the biggest beneficiaries. For example, investors pulled $126 million out of mutual funds that buy domestic and foreign stocks during the the first week of March, while $10.7 billion flowed into mutual funds that invest in bonds, ICI reported.

But, in the long term, the outlook for the industry should be bright as baby boomers continue to add to their retirement nest eggs. S&P says that “over the next 10 years, there should be a significant increase in retirement investments.”

Most big, national banks also provide money management and advisory services, but many sold off their mutual fund units after the financial crisis. Only a few, such as Bank of America (BAC) and its Merrill Lynch money management unit, and investment bank JPMorgan Chase (JPM), still rely on asset management as growth drivers, especially JPMorgan.

Bank of America’s global wealth management unit brought in more than $15 billion in net new assets in 2011 and generated net income of $1.6 billion. Bank of America shares have rocketed 66% this year.

JPMorgan, now one of the 10 largest U.S. stock and bond fund managers, saw huge growth last year of almost $50 billion in assets under management. Its shares are up 35% this year.

Here, in inverse order of returns this year, are 10 asset management firms that are benefiting from increased investor activity:

10. T.Rowe Price (TROW)

Company profile: T. Rowe Price, with a market value of $17 billion, provides asset-management services for individual and institutional investors.

Investor takeaway: Its shares are up 14% this year and have a three-year, average annual return of 37%. Analysts give its shares four “buy” ratings, three “buy/holds,” 16 “holds,” and one “sell,” according to a survey of analysts by S&P. But S&P upgraded it to “strong buy” from “hold,” on March 6 with a price target of $73, which is a 16% premium to its current price. Assets under management grew by 2% last year. S&P says “We think good relative performance of (its) mutual funds will continue to drive asset growth. For the three years through 2011 as 76% of the firm’s funds outperformed their comparable Lipper averages.”

9. State Street (STT)

Company profile: State Street, with a market value of $22 billion, is one of the largest trust banks worldwide, combining banking, asset servicing, and asset-management operations. At year end, State Street had nearly $1.9 trillion in assets under management, and nearly $22 trillion in assets under custody.

Investor takeaway: Its shares are up 14% this year and have a three-year, average annual return of 27%. Analysts give its shares seven “buy” ratings, nine “buy/holds,” six “holds,” and one “sell,” according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate that it will earn $3.90 per share, growing by 15% to $4.48 per share in 2013. S&P reiterated its “buy” rating on March 14. It just got a clean bill health in the Federal Reserve’s stress tests and subsequently said it is raising it dividend.

8. BlackRock (BLK)

Company profile: BlackRock, with a market value of $37 billion, is the world’s largest asset manager, with more than $3.5 trillion in assets under management.

Investor takeaway: Its shares are up 16% this year and have a three-year, average annual return of 27%. Analysts give its shares seven “buy” ratings, five “buy/holds,” and nine “holds,” according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate that it will earn $13.08 per share, growing by 14% to $14.91 per share in 2013.

7. AllianceBernstein Holding (AB)

Company profile: AllianceBernstein, with a market value of $1.6 billion, offers investment management services to institutional, retail and private clients, through its mutual funds, hedge funds, and separately managed accounts. At the end of January it had $421 billion in assets under management.

Investor takeaway: Its shares are up 16% this year and have a three-year, average annual return of 13%. Analysts give its shares six “holds,” two “weak holds,” and three “sells,” according to a survey of analysts by S&P. It’s expected to earn $1.03 this year, growing to $1.17 in 2013. S&P has its shares rated “strong sell” because of asset redemptions and outflows, particularly from institutional investors “as a result of a relatively poor investment track record since 2008, particularly in equities.”

6. Legg Mason (LM )

Company profile: Legg Mason, with a market value of $4.1 billion, provides investment management services for institutional and individual investors. It had $627 billion in managed assets at the end of 2011.

Investor takeaway: Its shares are up 22% this year and have a three-year, average annual return of 27%. Analysts give its shares two “buy” ratings, two “buy/holds,” 12 “holds,” two “weak holds” and one “sell,” according to a survey of analysts by S&P. For fiscal 2012, analysts estimate that it will

earn $1.49 per share, growing by 34% to $1.99 per share in 2013.

5. Eaton Vance (EV)

Company profile: Eaton Vance, with a market value of $3.4 billion, Eaton Vance provides asset management and investment advisory services to institutional and individual investors and specializes in tax-managed equity and fixed-income investments. It is also an issuer of closed-end funds. It had $188 billion in assets under management late last year.

Investor takeaway: Its shares are up 23% this year and have a three-year, average annual return of 17%. Analysts give its shares one “buy” rating, 10 “holds,” two “weak holds,” and one “sell,” according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate it will earn $1.89 per share and that will grow by 12% to $2.12 per share in 2013.

4. Franklin Resources (BEN)

Company profile: Franklin, with a market value of $27 billion, provides investment services for individual and institutional investors. With $727 billion in assets under management, it’s one of the world’s largest asset managers. It’s expected to earn $8.77 per share this year.

Investor takeaway: Its shares are up 31% this year and have a three-year, average annual return of 40%. Analysts give its shares five “buy” ratings, five “buy/holds,” 11 “holds,” and one “weak hold,” according to a survey of analysts by S&P. S&P has it rated “buy” with a $128 price target, a 6% premium to the current price.

3. Invesco (IVZ)

Company profile: Invesco, with a market value of $12 billion, provides investment management services for individual and institutional investors under the Invesco, Van Kampen, Trimark, Perpetual, Atlantic Trust, PowerShares, and W.L. Ross brand names. It more than $625 billion in assets under management, about one-third from outside the U.S.

Investor takeaway: Its shares are up 32% this year and have a three-year, average annual return of 31%. Analysts give its shares six “buy” ratings, 11″buy/holds,” and three “holds,” according to a survey of analysts by S&P.

2. Federated Investors (FII)

Company profile: Federated, with a market value of $2.3 billion, is a provider of asset management services for institutional and individual investors.

Investor takeaway: Its shares are up 47% this year and have a three-year, average annual return of 9%. Analysts give its shares nine “holds,” two “weak hold,” and four “sells,” according to a survey of analysts by S&P. As a big manager of money market funds, with slightly more than $285 billion in such assets at the end of 2011, historically low interest rates have made it difficult for Federated to maintain positive yields on these funds and industry-wide, investors have also moved to higher-yielding assets elsewhere.

1. Janus Capital (JNS)

Company profile: Janus Capital, with a market value of $1.8 billion, is a provider of investment management services to individual and institutional investors.

Investor takeaway: Its shares are up 49% this year and have a three-year, average annual return of 22%. Analysts give its shares three “buy” ratings, two “buy/holds,” 11 “holds,” two “weak holds,” and one “sell,” according to a survey of analysts by S&P.

S&P, which has the stock rated “hold,” said “we believe that shareholders will benefit from holding Janus over the long term, we think the company will face near-term challenges from the relatively weak performance of many of its equity mutual funds, which has prompted many investors to pull their funds and re-deploy them elsewhere.”

–Written by Frank Byrt for The Street

Article from Forbes

AIJ Beckoned Japanese Pensions With 50-Year-Old Return Targets

ridodirected@gmail.com (RIDO) — Wed, 21 Mar 2012 19:58:00 +0000

Bloomberg News

By Tomoko Yamazaki and Komaki Ito on March 21, 2012

Article from Bloomberg Business Week

Atsushi Kanbe, who manages a Japanese pension fund for wholesalers of products from vegetables to pottery to household goods, said he turned to AIJ Investment Advisors Co. to help increase gains to pay retirement benefits.

“Through word of mouth, we heard that fellow pensions had invested with AIJ that offered high returns,” Kanbe told a parliamentary committee on March 14. “We wanted to make sure we never became one of the pensions that needed special government oversight for being underfunded.”

More than half of Japanese corporate retirement funds give workers predetermined benefits that don’t change when investments fall, leaving companies to make up the difference. Most of these use the same 5.5 percent return target established about 50 years ago when Japan introduced employee pensions to match returns of the national pension plan, according to Kazuhiro Sugaya, a senior researcher at the Research Institute for Policies on Pension & Aging in Tokyo.

Kanbe’s Pension Fund of Japan Wholesalers Complex is one of dozens of small to mid-sized Japanese retirement plans with limited investment knowledge that may have lost money with AIJ after struggling for years to close funding gaps created by low bond yields and two decades of slumping stocks. Tokyo-based AIJ was suspended for a month on Feb. 24 by Japan’s financial regulator after it couldn’t account for all of the 185.3 billion yen ($2.2 billion) it managed for clients as of March 2011.

Pension Legacy

“AIJ’s incident highlights Japan’s pension industry legacy of trying to meet a return that was set decades ago when the economy and market were booming,” Sugaya said. “AIJ’s clients may have been lured to riskier investments to achieve the returns. In today’s Japanese market, you just can’t find investments that would yield the 5.5 percent return many need to meet to keep them alive.”

AIJ’s AIM Millennium fund had annualized returns of more than 14 percent and returned 241 percent since it started in May 2002, according to an October 2011 newsletter to investors. The firm hasn’t been accused of wrongdoing. Phone calls to AIJ’s main office were answered by an automatic recording which didn’t allow messages to be recorded.

Funding Shortage

More than 440 pension plans out of 595 under Japan’s employee pension fund system had a combined 1.55 trillion yen shortfall between assets and liabilities in fiscal 2010, according to the Ministry of Health, Labour and Welfare, which oversees the pension industry. That was a 40 percent increase from the previous year.

Japan has the world’s second-biggest pension market, with assets of $3.47 trillion, after the U.S., which has $15.27 trillion, according to Towers Watson & Co.’s 2011 Global Pension Asset Study. Of the Japanese total, about 80 trillion yen is in corporate pensions, according to data from the health ministry.

The health ministry has set up a panel of industry experts to review how corporate pensions invest and the practice of allowing former bureaucrats to oversee their management, known as “amakudari,” which means “descent from heaven.” The committee plans to come up with a set of new guidelines in June.

Need for Alternatives

“There are expectations that the government will strengthen oversight on alternative investments as a whole,” said Yuki Arai, a former lawyer at Tokyo Eiwa Law Office, who now co-heads Book Field Capital Co., a Tokyo-based investment firm that has its own hedge fund. “But given the low interest rates condition globally, there is no change in the fact that pensions do need alternative investments.”

The Government Pension Investment Fund, the nation’s public pension fund, is the biggest in the world with 108 trillion yen in assets. The fund, with the majority of investments in domestic bonds, had a 0.58 percent return in the three months ended Dec. 31. It has been selling bonds to cover payments as the first of Japan’s baby boomers are set to turn 65 in 2012, becoming eligible for pension.

Japan workers take part in a compulsory national pension plan, similar to the Social Security in the U.S. The Japanese system also allows corporations and industry associations to operate pension funds that supplement the national program.

5.5% Return

Eighty-seven percent of corporate pensions under the employees pension fund system targeted a 5.5 percent annual return, health ministry data shows, even as interest rates have been stuck close to zero for decades and the benchmark Nikkei 225 Stock Average is about a quarter of its peak in 1989 in the world’s fastest aging society.

The Pension Fund Association, which manages about 11 trillion yen of retirement assets for company workers, lost 0.52 percent on its investments in fiscal 2010. Its average return over the past 15 years has been 2.65 percent after it was allowed to diversify assets in fiscal 1996, according to its website.

Twelve of the 84 pensions that invested with AIJ were under government supervision because they had funding deficits, according to the health ministry. Of the 582 retirement funds under the employee pension fund system, 81 were under supervision as of Dec. 1, according to the ministry.

Hunting for Returns

This is what Kanbe’s fund sought to avoid.

The pension that represents cooperatives of wholesalers of a wide range of products nationwide first invested 200 million yen with AIJ in fiscal 2005, and gradually increased its investments to about 2.7 billion yen, said Kanbe, who was asked to speak in front of the lower house financial committee to present the fund’s involvement with the Tokyo-based asset manager. The pension had 5.6 percent of its assets with AIJ as of March 2011, according to the health ministry data. Kanbe declined to comment beyond his testimony during the Diet session.

Kanagawa Prefecture Printing Industry Association, Fukuoka Prefecture LP Gas and Koshinetstu Printers Association had more than 30 percent of their assets with AIJ, health ministry data showed. They pool contributions from workers at different companies in the same industry or by region.

Kanagawa Prefecture’s printers invested 57 percent of their assets, or 9.1 billion yen, in AIJ, the most by percentage, according to the data. Calls to the pension were only answered by an answering machine that didn’t take any messages.

Profits Versus Common Sense

“In the case of AIJ, underfunded Japanese pension funds seemed to have placed profits ahead of common sense,” said Jason Scharfman, managing partner of Corgentum Consulting LLC in New Jersey, which provides due diligence service to the hedge- fund industry. “The job of pension fund managers is to exercise due diligence and protect assets, not simply chase high returns.”

Pension funds that invested with AIJ have yet to find out how they are going to resolve their underfunding until they know exactly where the money actually has gone, said an adviser to a pension representing commodity industry workers in Tokyo, asking not to be identified because the investment process is confidential.

In the wake of the AIJ scandal, talks that taxpayer money should be used to help cover the underfunding has risen.

“The potential losses are different for each pension. The most important thing is how much money will be able to be collected with the most minimum loss possible because it’s a fact that 200 billion yen has been invested,” Kiyoshi Murase, executive managing director of the government-backed Pension Fund Association, said in the Diet session.

Favoritism Rankings

He added that each pension should be responsible for covering the losses and underfunding as long as their investments were not sizeable, while the question of whether other sources of funds will be needed to save them should be hashed out by lawmakers in political debate.

Pensions ranked AIJ, which marketed a hedge-fund strategy that offered steady returns, first in a 2008 survey in an industry publication owned by Rating & Investment Information Inc. in Tokyo. The ranking was based on responses from pensions and not R&I recommendations to investors, said Fujio Nakatsuka, an R&I spokesman.

“It is important to make it clear that the rankings are merely based on favoritism by the pensions, rather than the actual recommendation of a fund by a rating company,” said Kazuaki Sakura, the adviser to the retirement fund of Hitachi Kokusai Electric Inc. (6756), a unit of Japan’s second-largest manufacturer. The retirement fund didn’t invest in AIJ.

5:3:3:2 Rule

Japan used to advise pensions to allocate more than 50 percent of their portfolios to stable assets such as domestic bonds, less than 30 percent to equities and overseas assets, and less than 20 percent to real estate in what was known as the 5:3:3:2 rule.

That restriction was abolished in 1997, allowing the funds to set their own allocation targets. Retirement plans began investing in alternative assets, including hedge funds, to compensate for a lack of returns on traditional assets such as bonds and equities.

Today, the majority of Japanese pensions invest in alternative assets through major money managers affiliated with both local and foreign large financial institutions, said Hidenori Suzuki, the head of the strategic advisory group at JPMorgan Asset Management (Japan) Ltd. in Tokyo.

Typically, about 70 percent of larger corporate pensions would use consultants, with expertise in conducting due diligence and introducing investments, Suzuki said. The number would drop for smaller pensions, Suzuki said, without providing a figure.

‘Proper Gatekeeper’

“Trust banks and major investment companies would be the major players in introducing alternative assets to pensions,” Suzuki said. “It seems as though there were pensions that didn’t use consultants among those that invested with AIJ.”

In the wake of AIJ, the government is considering placing people with experience in financial products with pension plans after criticism it sent former bureaucrats who may not have had proper skills to conduct due diligence. Retirement plans that had former bureaucrats overseeing their management totaled 399 out of 614 as of May 2009, health ministry data shows.

A former employee of the Social Insurance Agency recommended AIJ’s investments to pension clients, setting up his own consulting firm, according to reports by Kyodo News, which didn’t identify the employee.

“Unless you have a proper gatekeeper within the pensions, it’s only natural that they don’t know what to invest in, especially when it comes to non-traditional alternatives investments such as hedge funds,” said Goro Ohwada, president and chief executive officer of Aino Investment Corp., a Japanese hedge fund. “Smaller multiemployer pensions don’t have the capacity or expertise that bigger corporate pensions may have.”

To contact the reporters on this story: Tomoko Yamazaki in Singapore at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

Article from Bloomberg Business Week

Goldman Sachs Asset Management seen as riding out parent's storm

ridodirected@gmail.com (RIDO) — Sat, 17 Mar 2012 19:35:00 +0000

BY KEVIN OLSEN AND DOUGLAS APPELL

PUBLISHED: MARCH 16, 2012

Article from Pension and Investment

Goldman Sachs Asset Management shouldn't see a major fallout from a scathing op-ed piece in the New York Times earlier this week by Greg Smith, former executive at parent Goldman Sachs, industry sources said.

Mr. Smith, who resigned this week as Goldman executive director and head of U.S. equity derivatives in Europe, the Middle East and Africa, wrote in his op-ed Wednesday that the environment at the firm now “is as toxic and destructive as I have ever seen.”

“Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,' sometimes over internal e-mail,” Mr. Smith wrote. “Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn't feel right to me anymore.”

One fund executive overseeing more than $1 billion in assets, who declined to be named, said if a GSAM client were looking for an excuse to fire the firm, this example of headline risk could provide one. But he predicted no major fallout, noting that the “scandal” touches on questions of moral fiber and character, rather than any directly attributable losses for clients.

However, James Wilbanks, executive director of the $10 billion Oklahoma Teachers' Retirement System, Oklahoma City, said the op-ed piece furthers the pension fund's belief that conflict can occur when hiring a manager that is owned by a bank.

“I would say we have certain biases when hiring investment managers,” Mr. Wilbanks said in a telephone interview. “We have a bias against asset managers owned by banks and insurance companies. Those asset managers can forget who they work for. They can be working for the bank instead of the clients, which is me.”

Oklahoma Teachers terminated GSAM earlier this year from a $480 million domestic large-cap growth mandate because of personnel changes; it does not have contracts with any money managers that are owned by banks in its active investment portfolio now.

“We've always been very, very keen on culture for our due diligence process,” Mr. Wilbanks said. “We are very cognizant of the qualitative issues.”

Nothing in that article would surprise anybody who has read “Liar's Poker,” Michael Lewis' book about his experiences at Salomon Brothers 20 years ago, noted Erik Knutzen, chief investment officer at consultant NEPC. The “headline” impact may give momentary pause to plan sponsors, but it merely serves as a reminder of the importance of assessing the pros and cons of working with a Wall Street-based money management firm, he said.

In the op-ed, Mr. Smith calls out Goldman Sachs CEO Lloyd C. Blankfein and President Gary D. Cohn for losing hold of the firm's culture under their watch. Messrs. Blankfein and Cohn responded in a statement posted on Goldman's website defending the services the firm provides and cites an intraoffice survey that shows 89% of employees said the “firm provides exceptional service to (its clients).” It says a similar percentage resulted from the responses from nearly 12,000 vice presidents, a group that included Mr. Smith.

“Needless to say, we were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients,” Messrs. Blankfein and Cohn stated in a news release posted on Goldman's website.

Morgan Stanley CEO James Gorman said he told his staff not to circulate the op-ed criticizing Goldman Sachs' environment and that he does not understand why the New York Times would publish the piece with Mr. Smith attacking the top managers and treatment of clients, according to information from Bloomberg News.

“There but for the grace of God go us,” Mr. Gorman said.

— Contact Kevin Olsen at kolsen@pionline.com and Douglas Appell at dappell@pionline.com

Article from Pension and Investment

Do Too Many Fund Managers Love Apple?

ridodirected@gmail.com (RIDO) — Wed, 14 Mar 2012 21:00:00 +0000

March 14, 2012, 1:24 PM
Article from The Wall Street Journal
By Jonathan Cheng

Photo illustration by Justin Metz for The Wall Street Journal

Everyone loves Apple. But not everyone loves that everyone loves Apple.

As we explained in this morning’s Journal, one reason the tech giant’s stock price has fared so well is that Apple has found buyers in nearly every corner of the investment world. This includes (but is not limited to): small-cap funds, mid-cap funds, dividend income funds, international (read: ex-U.S.) funds and even one high-yield bond fund.

(Our razor-sharp online team has cranked out a sortable table with a list of the mutual funds holding Apple. Play around with it here.)

This is great for Apple shareholders, who are now looking at Apple up over $590 (at last glance) and quickly zeroing in on $600. But Apple’s near-ubiquity on Wall Street hasn’t sat well with everyone, who see signs of a herd mentality in all the hubbub. Have a look:

Russel Kinnel, director of mutual-fund research at Morningstar: “While I think ‘value’ and ‘growth’ are in the eye of the beholder, I don’t think that’s the case for a small-cap manager… There are legitimate reasons for some of these funds to own Apple, but if it isn’t consistent with their mandate, then there are serious consequences, because people are using these funds to set their portfolios and to properly diversify.”

Dennis Houlihan, a registered investment advisor with about 150 clients in Fort Wayne, Indiana: “It just goes to show there’s no discipline…If they’re just putting the hot name in there to impress investors or chasing momentum stocks, that just doesn’t do the job… When I buy a high-yield or an international fund, I’m buying it for diversification purposes. If I want Apple, I’ll buy a technology fund or buy the stock… If they want to play these games and get loose with their investment charter, hey, so be it. There’s nothing illegal about it, per se, but does it pass the smell test? But if you’re a shareholder and you’re holding something far outside the investment charter of the fund and that stock blows up, then what’s he going to say?”

Mercer Bullard, a professor at the University of Mississippi School of Law, who in the late 1990s started a letter-writing campaign to pressure regulators into forcing fund managers to reflect their funds’ names: “Investors are supposedly buying exposure to a particular asset class, and investing outside that asset class completely contradicts the investor’s intent. If you have a fund name that says you invest in one thing, you should only be able to invest in that thing. The name should reflect the actual market risk in the fund.”

Rick Brooks, an investment advisor with Blankinship & Foster in Solana Beach, Calif.: “When you’re buying a smaller company fund expecting smaller companies, the last thing you want is the largest company on the planet to be a part of it… From a legal perspective, there’s always wiggle room, but that’s the attorney talking, not the fund manager. If I’m buying a fund specifically for small-cap exposure, I don’t want to see mega-caps in that portfolio unless I can identify the reason why.”

Larry Swedroe, director of research at Buckingham Asset Management in St. Louis: “They write their prospectuses specifically to give them that flexibility, but how many investors even bother to read the prospectus? We can’t ever know what’s in these funds — they’re so opaque and we don’t have time to read quarterly updates, so we generally avoid them… By buying mutual funds, you’ve lost control of your investment.”

Michael Gibney, a financial planner in Riverdale, NJ: “People see the return on Apple and they think it’ll go on forever…They could very well start paying a dividend tomorrow, but the fact that they’re not paying one now and you’re managing a fund that is supposed to be holding dividend-paying stocks, I’d say you’re jumping on the bandwagon… Even if they do benefit from this, it’s still something that shouldn’t have happened.”

It should be noted that not everyone feels this way about Apple worming its way into unconventional portfolios. “The unwritten rule in all investing is you want to win,” says Michael Lipper, president of Lipper Advisory Services. “You’re given a main bucket and an alternative, and if the alternative can produce enough of a gain, then your shareholders are ahead.” Just because it’s unusual, Mr. Lipper adds, “doesn’t mean it’s wrong.” “If, after a clear mature judgment, they want to do it, that’s fine.”

Article from The Wall Street Journal

Fund mandates of the week: ING IM, Aberdeen Asset Management, BNY Mellon

ridodirected@gmail.com (RIDO) — Mon, 12 Mar 2012 20:24:00 +0000

Sophie Baker
12 Mar 2012
Article from Financial News

Two appointments for ING Investment Management and equity and bond mandates for Aberdeen lead this week's round-up.

Fund management

ING Investment Management has been selected by Monuta funeral services and insurance provider to manage a €450m fixed income securities portfolio.

ING IM’s insurance boutique, a department set up to manage portfolios on behalf of insurers, will manage the mandate. The mandate will see ING IM take into account regulations that affect insurers, such as Solvency II.

The fixed income portfolio was previously managed by Monuta itself. Due to the increasingly complex nature of the markets, the firm opted for a partner to take over some of its investment activities. Last year Monuta transferred its monitoring activities to ING IM’s implemented client solutions department.

Monuta has insurance portfolios of more than one million policyholders.

ING IM has also been selected to manage a €500m government bond portfolio on behalf of health insurance company CZ.

Two weeks ago the Dutch firm appointed the world’s largest custodian, BNY Mellon, to provide custody and value-added services to support its new pooled investment structure.

Aberdeen Asset Management has been chosen as investment adviser to two Credit Suisse funds, effective from 2 April this year.

The $94m Credit Suisse Equity Fund (Lux) Brazil fund and the $153m Credit Suisse Bond Fund (Lux) Brazil funds will be merged into the group’s Luxembourg-domiciled Aberdeen Global Sicav in June. They will appear as the Aberdeen Global – Brazil Equity Fund and Aberdeen Global – Brazil Bond Fund.

The equity fund will be managed by Aberdeen’s global emerging markets team, and the emerging markets debt team will manage the bond fund.

Custody and fund administration

BNY Mellon has been chosen as principal paying agent, registrar, delegate and transfer agent on Dubai’s Majid Al Futtaim Sukuk’s new trust certificate issuance programme. A trust certificate is a bond or debt investment, usually in a public corporation, and is backed by other assets as collateral.

As delegate and principal paying agent, the custodian will provide fiduciary duties and make profit and principal payments to investors on behalf of MAF Sukuk. It will also handle the administration related to the issuance of certificates.

Italy-based banking group Banca Generali has appointed executive services provider Neonet as its provider of best execution services for Italian equities.

The appointment ensures best execution and compliance of the incoming Markets in financial instruments directive.

Investment platform Cofunds has been chosen as fund custodian to Charles Stanley, a stockbroking and investment management company, with an initial £1.2bn of funds migrating to its institutional service.

Cofunds will provide specialist fund dealing, settlement and sub-custodian services to the Charles Stanley Group, simplifying in-house processing and reducing costs.

Mauritius management company International Financial Services, or IFS, has implemented Multifonds’ Fund Accounting platform, and will migrate all of its weekly and monthly funds by the end of this quarter.

IFS provides advisory and management services for international businesses, servicing institutions and administering funds for asset managers including BlackRock, Invesco and PowerShares.

Texas-based Frost Bank has implemented Calypso Technology’s software solution, to support its financial derivatives business. The solution supports interest rate derivatives processing, and the plan is to extend the system to manage the trading and processing of various instruments, including commodities and foreign exchange.

The implementation allows Frost, which focuses on commercial and consumer banking across Texas, to expand their product offering and build market share across its range of services.

Article from Financial News

China grants new investment licenses to five overseas firms in Feb

ridodirected@gmail.com (RIDO) — Sat, 10 Mar 2012 20:24:00 +0000

Article from Reuters
BEIJING | Sat Mar 10, 2012 2:10am EST

(Reuters) - China granted new investment licenses to five foreign institutions in February to invest in its stock and bond markets, the securities regulator said on Saturday.

The Chinese Securities Regulatory Commission awarded the licenses to Taiwan's TransGlobe Life Insurance Inc and Cathay Life Insurance Co Ltd, Malaysia's Public Mutual Berhad, and Japan's Meiji Yasuda Asset Management Company Ltd and Sumitomo Mitsui Banking Corporation, it said on its website.

The institutions will still need to receive quotas from the foreign exchange regulator before they can start investing.

China has approved a combined quota of $24.6 billion in investment by 129 foreign investors under its Qualified Foreign Institutional Investor (QFII) system, the regulator said on Friday. China introduced the QFII system in 2003.

Beijing has been easing its controls on inbound investment recently as foreign capital inflows slow, in line with broader efforts to liberalize its capital markets.

Domestic media reported in January that China may soon finalize rules governing capital gains taxes on QFII and was soliciting opinions on a draft.

China controls capital flowing in and out of the country to protect it against financial turbulence, although Beijing has repeatedly pledged to speed up its liberalization.

(Reporting by Kazunori Takada; Editing by Daniel Magnowski)

Article from Reuters