Randomly Noted

Sometimes, when you get yourself into a little trouble, it forces you to do some things you may not otherwise have done. Take the case of BankAmerica. Through various mergers over the years, it built up a pretty sizeable asset management division which became known as Columbia Management. But then along came the credit crisis, and some problematic acquisitions that weighed on BankAmerica. It had to raise capital, so, it sold Columbia to Amerprise Financial for $1 billion.

Today, Ameriprise reported second quarter earnings and it showed some good profit numbers in its asset management business, which had two months of Columbia’s performance included. The unit earned $56 million this quarter versus a loss of $12 million in the year-ago quarter. By no means was this the unit powering all of Ameriprise’s earnings (insurance, annuities and wealth management all had higher profits.) But it is clearly a profitable business, one creating millions of dollars of cash for Ameriprise – money you have to wonder if BankAmerica is now regretting it doesn’t have.

My first reaction to news that most Americans polled by a mutual-fund trade group continue to have a favorable view of 401(k) retirement plans was to marvel at the apparent near amnesiac state  of those queried.

My second thought was that even if 90% of the households surveyed for the Investment Company Institute had a favorable opinion of retirement plans, it didn’t mean self-directed 401(k)s are an appropriate retirement savings device for all Americans.

“The 401(k) system has a long and productive future ahead in providing retirement security for millions and millions of Americans,” said Paul Schott Stevens, who heads the ICI mutual fund trade group.

Has everyone forgotten the gallows humor of relabeling the ubiquitous retirement plans, typically based on mutual fund investments, 201(k)s to symbolize the bear market’s rough treatment of their value?

If you were going to retire somewhere in 2008, even if you had a balanced 401(k) investment plan, odds are the bear market ripped through that plan, prompting you to work longer or live more modestly.

This bear market, and maybe that marks its rarity, was not respectful of asset allocation. Stocks and bonds went down and there were precious few places to hide.

Some structural alternatives ought to be considered. I suggested that creative minds on Wall Street would come up with structures that took more and more risk out of accumulated savings as retirement approached.

Maybe they will. Or maybe the bull market in stocks from the bottoms in March 2009 has done enough repair work to 401(k) portfolios to cause a pleasant amnesia and dull the desire for change.

Perhaps it’s as simple as allowing people to keep safe increasing percentages of their retirement funds from the vagaries of markets as they age.

Is at least one of the BRIC’s moving to the next level of developing nation status? One U.S. money manager apparently sees it that way. T. Rowe Price earlier today said it took a 26% stake in India’s fourth largest mutual fund manager (UTI Asset Management), a fund company that has about 10% of the assets under management in India. T. Rowe cited the strong growth in India’s working-age population and its high savings rate as a couple main reasons for the investment. It also hinted that it expected this to be a process. In other words, T. Rowe sees good growth potential in India but it may not be coming in the short term.

To give you an idea of where India is in investing, savings and wealth accumulation, UTI Asset Management has about $17.2 billion of assets under management. It also has 9.75 million individual and institutional accounts, according to the press release announcing this transaction. That comes out to about $1,764 per account. T. Rowe has $366 billion under management, which is more than double the entire Indian mutual fund market. But this deal isn’t about accumulating accounts today. It’s all about tomorrow.

In a speech last week, a commissioner of the Securities and Exchange Commission zeroed in on an interesting topic: the changing nature of direct share ownership in America.

“One of the most significant changes in our financial markets since the 1930s and 1940s has been the decrease in the relative percentage of securities owned directly by retail investors and the substantial increase in direct holdings by institutions,” said Commissioner Luis A. Aguilar  in the text of an Oct. 29 speech.

“Estimates indicate that in the 1950s, individuals directly owned more than 90% 0f public companies, and today that number is closer to 30%.”

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The heat continues to grow under U.S. boards of directors.

Just today, the U.S. Supreme Court heard oral arguments in an important mutual fund case. It revolves significantly around the question of whether  boards of mutual funds reasonably represent investors when they agree to the fees investors pay that fuel the salaries of mutual fund managers.

Meanwhile, between the federal pay “czar” who holds sway over the companies receiving substantial government relief and the Federal Reserve’s pay guidelines, corporate boards in financial services are being squeezed.

The connecting theme is executive pay and the widespread notion that most boards have not been anywhere near as vigilant as they should be in their responsibilities.

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Legg Mason has seen a pretty significant decline in assets under management over the past year. One year ago, it managed $922.8 billion. Today, that number is $656.9 billion. That big haircut was in part caused by big declines in the markets over the past year. But a significant amount also came from clients pulling their money out of Legg Mason funds.

But that trend seems to be slowing. In the most recent quarter, Legg Mason saw $8 billion of client money leave the firm. Not great at a time when the markets have stabalized and actually performed better. But a big improvement over the double digit declines the firm experienced in recent quarters, including the $77 billion loss of business in the quarter ended December.

First Trust Municipal Closed-End Fund Total Return Price Index

If you are thinking about investing in municipal bonds, you may have missed the boat.

Newswires muni expert Stan Rosenberg is reporting that tax-exempt bonds yields are at their lowest levels in 40 years. And while there still might be some instances of tax-exempt bonds offering better yields than taxable bonds on an after-tax basis, as one expert told Stan: He doesn’t see the wisdom in loaning money to a government for 25 years and only getting 3.75% a year in return for it.

Tax-exempt munis have rallied this year following introduction of the taxable Build America Bonds. This program gives incentives for municipalities to sell taxable bonds, thus lowering the supply of tax-exempts in the market. Strong demand, weak supply equals inflated prices and lower yields.

As you can see from the above chart, there has been a run-up in total returns for closed-end bond funds that invest in municipal bonds.

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It was a trio that formed the foundation of one of the best professional basketball teams of all time – Michael Jordan, Scottie Pippen and Horace Grant.

Grant surely will always remember those days with the Chicago Bulls. And he’ll likely remember for some time his relationship with the regional brokerage firm, Morgan Keegan. Newswires reporter Suzanne Barlyn reports that Grant won a $1.46 million arbitration award against Morgan Keegan for losses he incurred in mutual funds that were invested in risky securities, like bonds made up of subprime mortgages. Grant claimed he wasn’t told of the risk factor.

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Unless you are desperate for cash, there are certain businesses you should wait to recover before you even think about unloading them. Money management is one. Newswires reporter Daisy Maxey reports the buzz on Wall Street is that Morgan Stanley has been shopping around its Van Kampen mutual fund business. One scenario is an outright sale. Another is to sell it to a larger fund manager and end up with a stake in that larger fund manager. The latter would make most sense.

When asset values are underwater, as just about every business in financial services has been, you don’t sell – especially a business that compliments your wealth management ambitions – unless it’s one of those offers you can’t refuse. Wealth management is a fee-based business that allows for a steady stream of income in good and bad times. Same with mutual funds. Morgan Stanley has signaled that it likes the fee businesses – look at the joint venture it is doing with Smith Barney. Continue reading…

Putnam Investments is looking to regain some of its past might by cutting some of its fund fees to attract new business. But the real news to me in the company’s press release announcing the management fee reductions is that it is adding a performance fee structure – an idea that should become the industry standard.

Typically the way a mutual fund and its managers get paid is based on a flat fee that is a percentage of total assets under management. Not much incentive there except to get people to sell more of your funds.

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