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Vanguard Suffers Its First Firmwide Outflow Since 1994

The Fairholme Fund sues the federal government seeking dividends from its stakes in Fannie and Freddie, Munder Capital is on the block, a former Columbia manager succeeds Michael Kobs in the management of a set of Vanguard's municipal bond funds, and Columbia brings on board a former Putnam value ...

Morningstar Fund Analysts, 07/11/2013

Investors redeemed $432 million from Vanguard in June, including mutual funds, exchange-traded funds, and money market funds. The outflows at Vanguard were driven by a $7.4 billion outflow from the firm's taxable bond funds and a $2.5 billion outflow from municipal bond funds. Industrywide, those two category groups had outflows of $68 billion. Despite the outflows, the firm still managed to gain market share on the month as industry assets declined at a faster rate. While Vanguard's flows were not unusual given the acute reaction to the Fed's talk of tapering its asset purchase program, the outflow was the first firmwide outflow since December 1994. Excluding money market funds, Vanguard's outflow was $5.5 billion, while PIMCO led all firms with a $14.3 billion outflow.

Fairholme Suing U.S. Government Over Fannie, Freddie Shares
Bruce Berkowitz's Fairholme FAIRX fund is suing the United States government for the right to receive dividends from its preferred stock in Fannie Mae and Freddie Mac. In June, Fairholme had disclosed a $2.4 billion redemption value stake in the two enterprises' preferred stock. Fairholme's June 3 statement on the stake included the claim that "equitable treatment of taxpaying shareholders, including community banks, insurance companies, and mutual funds holding Preferred Stock, must be restored with dividends reinstated."

Fairholme's suits, which are being filed both in the U.S. Court of Claims and in the U.S. District Court for the District of Columbia, allege that the government has broken from the original terms of its 2008 emergency investments in Fannie Mae and Freddie Mac, unlawfully hurting preferred shareholders. Berkowitz contends that the firms, now profitable and repaying the government, are also in a position to begin paying dividends on preferred stock. "As solvent, highly profitable companies, Fannie and Freddie should honor all outstanding obligations to their investors," Berkowitz said in a July 9 news release.

Munder Capital Management Up for Sale
The private equity firm that owns Michigan-based Munder Capital Management has hired Goldman Sachs GS to oversee a sale process.

Crestview Partners and some of Munder's managers acquired Munder, which manages about $16 billion in assets, from Comerica in 2006 in a leveraged buyout that was valued at just over $300 million. Munder now runs 11 mutual funds. The largest is the $5.5 billion Munder Mid-Cap Core Growth MGOAX.

Munder could fetch $350 million-$400 million, according to a report from Reuters.

Former Columbia Manager Takes Lead at Vanguard Muni Funds
As of June 28, Michael Kobs is no longer managing a slate of Vanguard municipal bond funds. Kobs had served as comanager of Gold-rated Vanguard Tax-Managed Balanced's VTMFX bond sleeve and lead manager of Silver-rated Vanguard Intermediate-Term Tax-Exempt VWITX, Silver-rated Vanguard NY Long-Term Tax-Exempt VNYTX, and Vanguard NJ Long-Term Tax-Exempt VNJTX since July 2008. Kobs took a conservative approach to fixed-income investing and didn't stretch for yield by loading up on risky credits at his charges. As a result, his funds generally delivered steadier returns than did most rivals.

James D'Arcy is taking over for Kobs on Vanguard Tax-Managed Balanced's bond sleeve and Vanguard Intermediate-Term Tax-Exempt. D'Arcy, a former Columbia manager, led Columbia Short Term Muni Bond NSMMX from 2007 to 2011. There, he posted middle-of-the-road total returns but managed to lose less than peers in down markets. Meanwhile, Adam Ferguson and Matthew Kiselak have taken over as comanagers of New York Long-Term Tax-Exempt, and Kiselak has taken over as the sole manager of New Jersey Long-Term Tax-Exempt.

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