Today's Top Stories Also Noted: Spotlight On... FINRA opens arbitration to RIAs News From the Fierce Network:
Today's Top News1. Small endowment repudiates hedge funds
One of the great neighborhood institutions on Manhattan's Upper East Side is the 92 Street Y, which operates a $40 million endowment, which is of course exceedingly small. But it has long been a powerhouse sort of local institution that has packed its board with luminaries, "many of whom have sent children or grandchildren through its nursery school," notes CNBC. The Y thus was able to invest in some big-name hedge funds on very favorable terms. Indeed, it's agreement with some funds--such as Paulson & Co.--called for it to be fully reimbursed if the funds lost money. So they were essentially investing risk free in top funds, with all of the upside but no chance of any downside. Yet even on such firms, the Y has decided to redeem all its funds and start its portfolio over from scratch. "In recent months, the Y has turned its investments over to a new board member and hired an outside advisor to recommend a new strategy for its portfolio, said the people familiar with the matter. The advisor has suggested a more traditional approach to investing, according to these people, including the possibility of individual stocks and bonds, but not excluding the possibility of hedge funds." This perhaps isn't the making of a trend, but it does make sense for institutions to ponder the logic of their investing approach. A safe portfolio of traditional investments across multiple asset classes may be the wisest choice if you do not need to hit a performance home run. For more: Read more about: Endowments
2. Will new pre-paid card hit the large consumer banks?
Lots of opinions are being voiced in the wake of the pre-paid card launch by Walmart and American Express. Some would say the new card is a wake-up call to large consumer banks, a warning that they had better deal will their smaller accounts. Others would argue that the new pre-paid card will not amount to hill of anything meaningful. TheStreet.com weighs in with a commentary that falls into the latter category. "It's hard to see Wal-Mart and Amex really offering a viable alternative to consumers. While the partnership clearly wants to pitch itself as a white knight, arguing in a statement that it is 'expensive to be poor,' and that Bluebird 'rights many of the wrongs that plague the market today,' who do they think they are kidding? If Occupy Wall Street couldn't get people who hate big banks to switch to smaller ones--even sympathetic people like me--why should Wal-Mart or American Express be any different? The power of inertia is far too great, and it is aided by the fact that all the automatic deposit and billpay customers set up through their banks are extremely costly and time consuming to undo." With that said, it's fair to say that credit unions and some smaller banks did enjoy as surge in enrollment in the wake of the Bank of America debit card fee fiasco. While the card may not prompt a massive rush to the big bank exit, it is one of several issues that consumer banks need to monitor. There's a lot going on in the payments universe, and banks do not want to risk being shoved further down the value-add food chain. For more: Related article: Read more about: Debit Cards, Credit Cards 3. Sandy a good opportunity for banks
Banks have taken some reputation hits as of late. While the Occupy Wall Street movement has fizzled a bit, the relationship between big banks and their retail customers could hardly be described as warm and fuzzy. But a few banks were bent on doing right by retail customers hit by Sandy and her sister storm. While most banks have shut many branches for the storm, JPMorgan Chase announced it waived its late fees on a range of loans, including credit cards and business and consumer loans such as mortgages, home equity, auto, and student loans, for customers in eight states impacted by the hurricane. The bank has also said it will waive fees that occur when people don't properly manage their account balances, such as overdrafts and insufficient fund fees. Citibank told Bloomberg Businessweek that customers "should get in touch" if they need fees waived. Other media outlets said Citigroup was willing to cut various fees for hard-hit consumers. It's doubtful that access to cash was a huge problem for many people in the storm, though the Twitterverse offered some warning that ATMs were running dry. For more: Related articles:
Read more about: fees 4. Hedge funds now too staid for some investors
I've noted often that the rise of large institutional investors as the most important class of limited partners has had a profound effect on the hedge fund industry. Gone are the days when the general partners called the shots, and limited partners were mainly wealth individuals. As the industry rocketed past $2 trillion in AUM, the big institutional investors became the main powers. In the wake of the financial crisis of 2008, they ended up with much more influence. These days they demand a wide range of compliance assurances, favorable gating policies, third party administration and a higher level of professionalism at all levels. In some ways, the more established funds have become a bit staid, too staid for wealthy investors seeking more risk. Reuters reports that, "Rich private investors are turning their backs on hedge funds because moves to attract more conservative pension fund clients mean managers no longer deliver the big returns they crave. The fastest growing source of new money for hedge funds is now pension funds and insurance companies who want managers to go easy on risky trades. Funds are finding it hard to say no to the big money these investors offer so rich clients are feeling neglected." One expert was quoted saying, "High net worth investors went into hedge funds in many cases because they personally knew the manager, they wanted significant returns and weren't hugely concerned with monthly numbers or volatility. Institutional investors want uncorrelated returns and low volatility from hedge funds. (They) want different things." So what to make of this thesis? My sense is that it's a bit of simplification that hedge funds have gone conservative to attract institutions. They may have professionalized a bit, but institutional investors want growth above all else and are willing to invest in high beta funds as part of a diversified approach. It will be up to hedge funds to market themselves to institutions in terms of risk tolerance levels. Track records will be important. For ore: Read more about: High Net Worth Individuals 5. Banks in public eye due to evictions
Banks are in a tough spot when it comes to evictions. There's no doubt many evictions are legitimate, and some are possibly legitimate but warrant some special attention. Evicting homeowners with terminal cancer falls in the latter category, warranting a look at two recent cases. Consider Cindi Davis of Mount Holly, North Carolina. "Since 2008, Cindi's life has been about chemotherapy to fight what has turned into terminal breast cancer, and about finding the energy and money to save her home from foreclosure...In August, Wells Fargo told NBC Charlotte that Cindi's home wasn't in active foreclosure and no one had asked her to leave. But then, just two weeks later, a deputy served her with papers from the bank saying her house would be sold at the courthouse just six days before Christmas." That sparked a public outcry, which prompted the bank to go easy. "Wells Fargo has backed off," moving a foreclosure hearing "to 2013, allowing all parties more time to find a solution that keeps a dying woman in her home for Christmas," reports a local news outlet. That seems like a kind move with no real revenue implications. For a different outcome, consider the eviction of Niko Black, who "was alone and ill when deputies from the Orange County Sheriff's Department arrived to evict her from her Garden Grove home on Shannon Avenue...The 37-year-old Mescalero Apache woman, who suffers from a rare, malignant and metastatic form of cancer, refused to open the door, saying that they had no legal right to be there. On the other side was a taped copy of a court order obtained from Federal Bankruptcy Judge Theodore C. Albert in late August that she firmly believes should have prevented the OCSD from carrying out the eviction. The deputies acted anyway." Once inside, one officer put "a gun to my face, finger on the trigger, no safety and walks around me," Black told local media. "There's no reason, except for to threaten my life, for an intimidation factor, to put a gun to my head." She started to have a seizure, and neighbors called for an ambulance. As of now, it's unclear who the servicer is. Some media outlets have indicated it is Wells Fargo, but the banks emailed us to say they are in fact not the servicer. We'll try to get more information. Over time, these sorts of eviction mishaps can really help erode a brand. Not too long ago, recall that Wells Fargo foreclosed on a home and commenced with an eviction, even though the owners didn't even have a mortgage. The bank can't always control its contractors, but that's not really the point. It needs to understand that it is squarely in the media's eye on these issues as the nation's number one mortgage company. For more: Related articles:
Read more about: Foreclosures Also NotedSPOTLIGHT ON... FINRA opens arbitration to RIAs At a time when there's lots of uncertainty about oversight of registered investment advisors, FINRA has opened its controversial arbitration process to RIAs. Previously, the process was used only for securities industry cases. A formal announcement is coming soon. The regulatory body says that it made the move in response to demand from attorneys. Both parties in a dispute have to agree to the use of the arbitration forum for a case to be heard. Article Company News:
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Wednesday, October 31, 2012
| 10.31.12 | Will new pre-paid card hit the large consumer banks?
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