Fund Times: Waddell & Reed to Pay $77 Million in Settlement
Plus, Washington Mutual and Comerica put fund shops on the block.
Plus, Washington Mutual and Comerica put fund shops on the block.
Waddell & Reed was hit with a $77 million tab to settle market-timing charges from regulators at the SEC, the New York attorney general's office, and the Kanas securities commissioner. The firm will pay $52 million in fines plus an additional $25 million in fee reductions to be spread out over five years.
According to the settlement, Waddell & Reed permitted market-timing in its funds going back as far as 1996 right up until September 2003 when Eliot Spitzer announced his probe into the practice. The settlement documents say that Waddell & Reed was more direct than most of the firms in the scandal in that it simply charged additional fees for market-timing space rather than quid pro quo sticky money deals: "The Timing Agreements required the Fee Paying Timers to pay W&R or W&R Services a fee ranging from 25 to 100 basis points on the timing assets, purportedly as payment for services."
Waddell & Reed received $3.6 million in fees from three market-timers who in turn netted a profit of $8.2 million, according to settlement documents. They also state that Waddell set limits on the percent of the total fund assets for which the timers could account, but that the timers were able to exceed those limits.
In addition, the documents say Waddell & Reed International Growth was the most frequent target of the timing and the most profitable for the timers presumably because of time zone arbitrage. It said that at one point one market-timer had $40 million, or more than 5% of the fund's total assets. From March 2001 through September 2003, timers netted a profit of $11.7 million, according to the documents.
The agreement also requires that the fund board employ a consultant who will negotiate advisory fees at arms length to the firm. Another unusual aspect of the settlement is that it does not name any of the people at the firm who were responsible for the timing--nor did it require any to leave the firm.
Jennison Emerging Growth to Change Names
Jennison U.S. Emerging Growth Fund's (PEEAX) board has approved a name change effective December 31. The new name, Jennison Mid-Cap Growth Fund, reflects the fact that Jennison has toned down the fund's aggressive strategy.
Washington Mutual and Comerica to Sell Fund Business
Washington Mutual (WM) said it plans to sell its fund management arm, WM Advisors, along with its distribution and shareholder services business lines in a supplement to its prospectuses dated July 19, 2006. The sale comes as part of an overall restructuring plan at the company geared toward refocusing its primary retail-banking business. While no buyer has yet been identified, and any sale would be subject to approval by the funds' board of directors and shareholders, the firm said it expected a deal to be done by the end of the year. The WM group of funds comprises 21 distinct equity and fixed-income retail offerings totaling roughly $29 billion in assets as of June 30, 2006.
Also on the block is Comerica (CMA) owned Munder Capital Management, advisor to the Munder family of funds. The Detroit-based bank is reportedly involved in negotiations with Crestview Partners, a New York private-equity fund, in what looks to be in part a management buyout deal. Munder managed roughly $41 billion in assets as of the end of June, though only about $7 billion of that was in its 20-odd retail mutual funds.
Both moves reflect the recent trend of banks discarding their mutual funds in an attempt to focus on their core businesses. Heightened regulatory scrutiny into the sales practices of proprietary funds, along with the perceived lack of scale necessary to compete against the dominant asset managers in the business, have also been cited as factors prompting sales.
Phocas Funds To Launch in September
Phocas Financial (pronounced focus) has filed a prospectus with the SEC to launch a Real Estate and Small Value fund in September 2006. Phocas, based in Alameda, California, was founded in 2005 by veterans of Bay Isle Financial LLC--including former CEO William Schaff--a subsidiary of Janus and advisor to some of the now defunct Berger funds. As indicated by the funds being rolled out, the firm specializes in REITS and small-value stocks.
Phocas also has the distinction of joining the growing list of poorly named asset managers that have either opened their doors or rebranded their funds recently.
Clarification
In the July 6 edition of Fund Times we briefly noted that Bob Perkins had been dropped from the prospectus as a manager at Janus Mid Cap Value (JMCVX) and Janus Aspen Mid Cap Value (JAMVX). We suspect this had more to do with new, stricter SEC rules governing who can be listed as a manager given that Bob Perkins had a limited role in running those funds as compared with his brother Tom Perkins.
That said, Bob Perkins has not left the firm and is still the named and primary manager at Janus Small Cap Value (JSCVX).
Fund analyst Kerry O'Boyle contributed to this article.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals
and individual investors. These products and services are usually sold through
license agreements or subscriptions. Our investment management business generates
asset-based fees, which are calculated as a percentage of assets under management.
We also sell both admissions and sponsorship packages for our investment conferences
and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.