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Today's Top News1. Judge rules against ex-Morgan Stanley advisor
The brokerage industry has invested fairly heavily in creating protocols governing advisors' moves to other firms. And yet there are often still cases where good intentions seem to break down, as recriminations fly. Such is the case with former Morgan Stanley broker Denis O'Brien. Reuters notes that a federal judge in Connecticut has ordered him to return client information to his former employer and has prohibited him from soliciting prior clients. The judge determined apparently that he somehow sabotaged the firm's ability to reach those clients. O'Brien, who worked at Morgan Stanley for nine years before leaving for Raymond James, apparently "changed 206 client telephone numbers in the Morgan Stanley contact management system before he left, causing 'irreparable harm' to the firm, the decision read." The court's order that O'Brien "surrender all information on his former clients and not solicit them" did not apply to the clients who had already followed O'Brien to Raymond James as of November 4. But "while the court decided that O'Brien's actions complied with the 'technical aspects' of the industry protocol that allows advisers to take client contact information with them to their new firms, it ruled that he violated its 'spirit' by changing Morgan Stanley's computerized records." So what's the lesson here? Companies will be looking for reasons to throw the book at defecting attorneys if there is even a perception of wrong-doing. Why take the chance? For more: Read more about: Morgan Stanley
2. Bank of America moves 401(k)plan in house
Would it surprise you to learn that Bank of America's 401(k) plan for employees was managed by Fidelity? That's been the case for years. But the bank has finally wised up and decided to move much of its plan in-house, according to Reuters. The plan is massive, ranking as the 8th largest, and represents a significant chunk of fee revenue. Why would you want to give that to a competitor? Well, it's a two-edged sword in some cases. The plaintiff's bar in this arena is very active. It has successfully initiated a number of cases pitting employees against employers. For example, Walmart, which operates the largest 401(k) plan in the nation, was sued by employees and settled in 2011. The plaintiffs basically charged that employees were charged unduly high fees and were not accorded the same fiduciary treatment as other customers in plan. A group of Fidelity employees are suing Fidelity for similar reasons. This does not mean that Bank of America is in line to be sued by its own employees. As for Walmart, it is in the midst of deciding if it wants to move its retirement program away from Bank of America Merrill Lynch. Reuters reported recently that it is pondering a move to Wells Fargo. That would be a blow to Bank of America Merrill Lynch, which has administered the plan for 15 years. For more: Read more about: Bank of America, 401(k) 3. Private equity firm targets retirement plans
For private equity firms, there's gold to be found in 401(k) plans. Private equity exposure has of course been a staple when it comes to public pensions. But 401(k) plans have traditionally not been able to readily invest. That is quickly changing. These days, 401(k) plans can offer exposure to private equity and alternative investment vehicles in several ways. The vehicles within 401(k) plans can invest directly in the likes of Apollo, Carlyle, KKR, Blackstone and a few other alternatives companies. In addition, ETFs that seek exposure to hedge funds and alternatives have exploded. Other ETFs aim to replicate various strategies associated with alternatives. But what about direct investment in private equity? CNBC notes that Pantheon Ventures, a global private equity firm with $24 billion in assets under management, "claims to be the first to offer private equity exposure within target date funds, which have become the default investment in 401(k) plans. The firm doesn't expect to be the last, though, as private equity firms race to find new sources of investor assets." Pantheon is marketing its program "to sponsors with custom target date funds—unlike employers who offer funds with ready-made target dates, from firms such as Fidelity and Vanguard—though it has begun talks with big fund companies." The hope of course is that sponsors will see the benefit of embracing this sort of uncorrelated exposure as a way of boosting returns over the long haul. So far, however, Pantheon has not signed up any clients, after having met with about 50 companies. For more: Read more about: Retirement Accounts 4. IPOs sport one-day trading pops
Big one-day gains when IPOs price are back! Twitter leaped from an offer price of $26 a share to $50 at one point before settling down to close at around $45. It was not the only issuer to fare well on the first day of trading this year. In the United States, the average first-day price jump so far has been 21 percent. That's the most since 2000. According to widely quoted IPO experts Jay Ritter, more than $7 billion has been left on the table by companies going public. Thus, the controversy over whether underwriters are doing right by their clients has been revived. The age-old argument has been that big one-day pops deprive issuers of money that could be used toward productive corporate uses, like investment or hiring. In the case of Twitter, the money left on the table amounts to $1.5 billion. "The upshot is that, on average, the cost of raising equity is much higher than it needs to be – and some companies, such as Twitter, raise substantially less cash to fund their operations than they could have." In the days of dot-com yore, this exploded as a regulatory issue. Underwriter practices in terms of building trading demand on the first day became exceedingly controversial. This time around, the controversy has been more muted. The reality is that in the current system many people benefit, including the executives of the issuer. They tend to profit handsomely when the stock roars on the first day. Unless issuers decide to make a huge stink about this, the current system will remain. For more: Read more about: IPO 5. Giving hedge fund traders an edge
Can hedge fund traders be trained to outperform? That's unclear, an untested hypothesis as of now. But if hedge funds want anything, it's an edge in the markets. This can take different forms, one of which relies on enhanced training of traders, which some call mindware, according to DealBook. "The idea is not new, but it has taken some time to gain traction. In the early 1990s, Steven A. Cohen, the founder of SAC Capital Advisors, hired Ari Kiev, a psychiatrist who had previously worked with athletes, to coach SAC's traders," according to the article. "Two decades on, aided by the growing popularity of literature on the behavioral science of decision making, the idea that self-awareness can lead to better decisions in business and finance is beginning to be accepted on Wall Street." Just as top athletes benefit from the best, most expensive trainers, hedge fund traders sense that they need similar support that analyzes their performance and isolates areas where they can enhance their performance. We may be getting to the point at which all traders will see the need for such training, negating any advantage. We're still a long way from that day. For now, there are still quite a few who will scoff at the idea of trader training. But if their performance starts to flag relative to those who use trainers, they will quickly change their tune. For more: Read more about: Training Also Noted
SPOTLIGHT ON... Morgan Stanley: Net stocks overheated The market for Internet stocks seems a little overcooked right now, as hype may have led to higher-than-warranted valuations, according to Morgan Stanley. According to Reuters, it removed Google from its Best Idea List. The firm, however, maintains its "overweight" rating on Google and other internet stocks including eBay, Amazon.com, LinkedIn and Facebook. "While we still believe that our Overweight-rated stocks hold upside, we find overall valuation for the entire group to be unflattering." Article Company News:
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Wednesday, November 13, 2013
| 11.13.13 | Private equity firm targets retirement plans
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