Mutual Funds

Mutual Fund Distribution Fees Reconsidered

mutualfundsinheadlines12b-1fees.jpgSecurities regulators will review the $11 billion distribution and service fees charged by many mutual funds. Yesterday the Securities and Exchange Commission said it will hold a roundtable discussion on June 19 to discuss the fees.
Often referred to as “12b-1 fees” after the Investment Company Act rule that allows them, the fees were instituted in 1980 as a temporary measure to compensate fund managers for the costs of marketing the fees and attracting new investment. The idea was that mutual fund investors would benefit from economies of scale if fund managers could use part of the fund assets to build larger funds.
Now the fees have become a regular part of the mutual fund business, with even some closed-end funds—which are closed to new investment dollars—charging 12b-1 fees. SEC Commissioner Chris Cox says that the fees need to be reviewed because their use has departed widely from the original purpose.
“When the Commission adopted Rule 12b-1 more than a quarter century ago, the idea was that 12b-1 fees would be a temporary solution to address specific distribution problems, as they arose. But today’s uses of 12b-1 fees have strayed from the original purposes underlying the rule, and it is time for a thorough re-evaluation,” said SEC Chairman Christopher Cox.
After the jump, read the full SEC release regarding the fees.

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  • 22 Jun 2006 at 3:21 PM
  • Banks

Will NYSE Breakup Hedge Funds and Brokers?

Angelina.jpgThe NYSE may be seeking to break-up the cozy relationship between Wall Street brokerage houses and hedge funds, according to a report in Crain’s.

The New York Stock Exchange may begin asking big mutual funds and hedge funds to start trading shares directly with the institution, bypassing the Wall Street brokerage houses that have long handled their orders.

But are hedge funds really interested in trading directly with the exchange? Surely there are some who’d like to cut out the expenses of a middle-man broker but the relationship between brokers and funds is more complex than just placing orders for financial products and paying fees. Hedge funds often borrow money from the institutions they trade through, and this method of levering up their positions might be harder to come by if they were trading directly.
In short, trading directly through the NYSE might sound like an attractive offer but its probably not enough to Angelina Jolie* the relationship between the Brad Pitt hedge funds and the Jenifer Aniston brokers.

NYSE may bypass brokerages for trading
[Crain's via Underthecounter]
* Please note: That picture is totally photoshopped.

FEAF: Shorting Corporate Social Responsibility Since 2005

paulson.jpgSlate’s Daniel Gross on the Free Enterprise Action Fund** (a.k.a., The People Who Heckled Hank Paulson for Being a Tree-Hugger at the Last Goldman Shareholder Meeting):

Are you a right-wing, free-market type who believes that Fortune 500 CEOs have devolved into a gaggle of eco-friendly squishes? Do you like paying high expenses for stock market returns that lag the S&P 500? Would you trust a former tobacco executive and a critic of junk science to manage your money? Then have I got a mutual fund for you!FEAF takes itty bitty positions in companies that eschew corporate social responsibility policies, and publishes a list of its investors. But perhaps most telling is its requisite risk disclaimer: “Mutual fund investing involves risk, including loss of principal.” We assume it’s just the wording, but it almost sounds like loss of principal is expected.
**er, micro-fund. FEAF has all of $5 million under management.
A Very Curious Right-Wing Mutual Fund [Slate]