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Economix Blog: Rajat Gupta, Merely Affluent

October 28, 2011 by Leave a Comment

Rajat K. Gupta leaving court on Wednesday.Spencer Platt/Getty ImagesRajat K. Gupta leaving court on Wednesday.

Rajat Gupta was rich by almost any standard. He just wasn’t rich compared with many of the people who surrounded him. He knew it, and he didn’t seem to like it.

More than a few of his friends and colleagues had tens or even hundreds of millions of dollars. They included his fellow board members at Goldman Sachs, the alumni of McKinsey Company — a firm that Mr. Gupta ran and that paid him a few millions of dollars a year — who then made fortunes on Wall Street and, perhaps most important, his friend Raj Rajaratnam, the hedge-fund manager sentenced to 11 years in prison for insider trading. Mr. Gupta, who was indicted Wednesday for passing along corporate secrets to Mr. Rajaratnam, has proclaimed his innocence.

DAVID LEONHARDT

DAVID LEONHARDT

Thoughts on the economic scene.

What seems beyond doubt, however, is that he was envious of the wealth that his peers were amassing. In that way, Mr. Gupta is a symbol of a different kind of income inequality from the one at the heart of the Occupy Wall Street protests, where demonstrators proclaim themselves part of the “other 99 percent” and criticize the top 1 percent of earners.

Mr. Gupta was surely part of the 1 percent. But seems to have felt as if he was part of the other 99 percent of that 1 percent.

You don’t have to sympathize with him to see how his envy could have affected the choices he made — orienting his post-McKinsey career around making money, handing over large chunks of his money to Mr. Rajaratnam and, at least according to prosecutors, going to great lengths to curry favor with Mr. Rajaratnam.

Such envy extends well beyond people accused of committing crimes. The inequality among the rich is a major force pushing many graduates of the country’s top colleges to Wall Street and drawing middle-aged professionals from other lines of work to finance.

Consider the numbers. Three decades ago, a taxpayer at the cutoff for the top 0.01 percent of earners — that is, in the top 1/10,000th — was making about 10 times as much as someone at the cutoff for the top 1 percent, according to research by the economists Emmanuel Saez and Thomas Piketty.

Since then, the top 1 percent has done very well, nearly doubling its income in inflation-adjusted terms, which is a far bigger raise than most households have received. Yet the very rich have done vastly better: someone at the cutoff for the top 0.01 percent now makes 30 times as much as someone at the top 1 percent, according to the latest numbers.

To someone making a few million dollars a year, these very rich — rather than the median-earning American — are often the relevant benchmark. “Most families are trying to keep up with the Joneses,” as Catherine Rampell wrote in a post here earlier this year. “And in dollar terms, the rich are falling far shorter of their respective Joneses than the middle-income and lower-income are.”

Article source: http://feeds.nytimes.com/click.phdo?i=b0296c9945680931d4e7f22e0811625b

Filed Under: Economy News Tagged With: , ,

You’re the Boss Blog: Angel Investors-in-Training Choose an Investment

October 28, 2011 by Leave a Comment

Pipeline Fund fellows (left to right, with T-shirts) Monica Barrera, Dawn Barber, and Elizabeth Crowell.Erica TorresPipeline fellows (left to right, with T-shirts) Monica Barrera, Dawn Barber, and Elizabeth Crowell.

She Owns It

Portraits of women entrepreneurs.

Since April, I’ve followed the progress of the first class of Pipeline Fellowship fellows, 10 women who learned how to become angel investors during a six-month program, and then chose a company to receive their pooled investment. When I last checked in with them, they had narrowed the field of possible companies to three — all of which were for-profit, woman-led, and socially conscious, as required by Pipeline.

Last week, the fellows announced their choice: PhilanTech, a company that develops and sells an online grant-management tool for nonprofit organizations and foundations. PhilanTech, founded in 2004 by Dahna Goldstein, will receive a total investment of $105,000 — $50,000 contributed by the fellows as part of the program, plus an additional $55,000 that two fellows added on their own. In exchange for their investment, the fellows will receive equity and two PhilanTech board seats (one for the $50,000 investment, and a second for the additional money raised).

Conor Barnes, one of the 10 fellows, said PhilanTech impressed her immediately. She said Ms. Goldstein started her pitch by stating that the nonprofit world had a $5.5 billion problem that her product solved: 13 cents of every grant dollar goes to grant administration. As a veteran of several small nonprofits, Ms. Barnes said the solution resonated with her.

“A lot of entrepreneurs come in and say, ‘Who wouldn’t want this product?’” said Ms. Barnes. But Ms. Goldstein knew her customers. “When she said, ‘Investors don’t understand me,’ it wasn’t code for, ‘I can’t explain it,’ ” said Ms. Barnes. Instead, it indicated that the nonprofit world wasn’t on investor radar screens. “They had no experience with the problem,” said Ms. Barnes.

Elizabeth Crowell, another fellow, was won over by Ms. Goldstein’s responsiveness and her readiness to build PhilanTech. “In terms of social impact, she didn’t meet our criteria, she exceeded it,” Ms. Crowell said. She added that social impact was part of Ms. Goldstein’s D.N.A., and not an afterthought tacked on to her pitch just to secure funding. When Ms. Goldstein pitched to established angel groups, she said they seemed to view PhilanTech’s social mission as a distraction. “There was a misalignment of priorities,” she said.

Ms. Goldstein, who has an M.B.A. and a background in educational technology, said the Pipeline money was “game-changing” for PhilanTech. She plans to raise $250,000 at this stage and says that having $105,000 of that in hand will help when approaching other investors. PhilanTech, which has four employees, expects to use the funding to make sales and marketing hires within the next six months.

For PhilanTech, the benefits of partnering with Pipeline are more than financial, Ms. Goldstein said. “I’m also getting 10 passionate, committed women with different backgrounds and networks who are invested in my success,” she said. “I can’t even figure out how to value that.”

In addition to being committed to PhilanTech’s success, the fellows are sold on angel investing. Ms. Crowell said she was starting to build deal flow and to consider ways to augment her portfolio. Through her Pipeline connections, she is meeting with more experienced investors. She wants to focus on small and local businesses and has found the book Locavesting particularly helpful on the subject. (The book, by Amy Cortese, is published by Wiley.) She’s also researching Mission Markets, an exchange for socially responsible businesses.

Ms. Crowell has learned that angel investing takes patience. “This isn’t like logging on to your e-account and day trading,” she said. In addition to being comfortable with a long horizon, she said angel investors must be tolerant of risk. She stressed the importance of building a portfolio of companies. “If you have a 10-company portfolio,” she said, “you have to be prepared for three or four of them to lose 100 percent of your money.”

For Ms. Barnes, the biggest revelation was that angel investing can be taught. “It’s not magic,” she said. At the same time, she added, success can be random: “You can do all the due diligence you want, but part of it is luck.”

You can follow Adriana Gardella on Twitter.

Article source: http://feeds.nytimes.com/click.phdo?i=6fe7ac56df93a0fa500847a86fc1495c

Filed Under: Small Business Tagged With: , ,

Another Scandal Unsettles Corporate Japan

October 28, 2011 by Leave a Comment

TOKYO — It is the second wild boardroom drama to shake up corporate Japan in days: the country’s leading tissue maker, Daio Paper, said on Friday that it would file a criminal complaint against its former chairman, accusing him of illicitly borrowing $140 million in company funds and channeling some of that money to a Las Vegas casino company.

The controversy provides yet another lens into the seemingly free-wheeling behavior — and disregard for corporate governance — still seen among top management at some of Japan’s leading companies.

Olympus, the medical imaging and digital camera maker, has lost half its stock market value this month since its ousted chief executive released internal documents that he said showed the company made over $1 billion in improper payments over a series of acquisitions.

But the scandal at Daio Paper, which makes the best-selling Elleair brand of tissues in Japan and other paper products, is unique because the company has made public the ex-chairman’s alleged shenanigans. In a report filed with the Tokyo Stock Exchange on Friday, the company also acknowledged gross lapses in its corporate governance.

According to the report, the former chairman, Mototaka Ikawa, routinely ordered subsidiaries to deposit money into his personal bank account and to an account held by a Japanese subsidiary of the casino operator Las Vegas Sands. Mr. Ikawa has since repaid almost half of the money, the report said, but has claimed he used the rest on currency trading and dealing on the stock market.

Mr. Ikawa has denounced the report, calling it biased, but has not responded publicly to specific charges, according to the public broadcaster NHK. The report says that Mr. Ikawa has admitted to borrowing some of the money, but has suggested he intended to return it. But he failed to turn up at most of the meetings requested by the authors of the report, it said.

Daio Paper’s share price has dropped about 15 percent since reports about the loans started surfacing in the local media. Mr. Ikawa stepped down on Sept. 16.

“I apologize from the bottom of my heart for the discovery of 10.7 billion yen in loans to our former chairman, which has brought great inconvenience to our shareholders,” the president of Daio Paper, Masayoshi Sako, told a packed news conference.

Mr. Sato said the company had also fired Mr. Ikawa’s brother, a board member, Takahiro Ikawa, and their father, Takao Ikawa, who is an adviser to Daio Paper and a former chairman. His father, Isekichi Ikawa, founded the company in 1943.

The dominance still wielded by the founding family was excessive, Mr. Sato said, though he added that the company would still ask Takao Ikawa for advice from time to time. The Ikawa family is a major shareholder in the company.

According to the report filed with the stock exchange, which the company said was prepared by an outside panel of legal experts, Mr. Ikawa ordered seven subsidiaries to lend him a total of 10.68 billion yen between May 2010 and September 2011. He has since repaid 4.75 billion yen.

“In many cases, the former chairman would unilaterally demand: ‘You must deposit X million yen into my account by tomorrow,’ ” the report said. Executives at the subsidiaries knew Mr. Ikawa wanted the funds for personal use but did not question him, and the loans were made without collateral, it said.

Some of the subsidiaries were forced to take on more debt to cover for the loans to Mr. Ikawa, the report said. In the year to March, the company booked a net loss of 8 billion yen on sales of about 410 billion yen.

According to the report, Mr. Ikawa demanded that the money be paid into a personal account held under his name or to the casino company, sometimes through another Daio Paper subsidiary. Daio Paper has no business dealings with Las Vegas Sands, the report said.

In a harsh self-criticism, the report said that company executives, board members and even its auditors turned a blind eye to the loans.

“At the Daio Paper Group, speaking out against the Ikawa family has not been condoned,” the report said. “When the former chairman asked for a transfer of funds, his wishes were obeyed without question.”

Daio Paper said that it would ask Mr. Ikawa to repay the remaining 5.93 billion yen and investigate how he used the money.

The company also announced a 50 percent pay cut for the president, Mr. Sako, and other censures for its board members, and said it would set up a special committee to study ways to bolster its corporate governance.

Article source: http://www.nytimes.com/2011/10/29/business/global/new-scandal-presses-corporate-japan.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Hitches Signal Difficulties Ahead for the Euro Zone

October 28, 2011 by Leave a Comment

Italy was obliged to pay the highest rate in more than a decade to sell a new bond issue, a sign that investors remained wary of the country’s political paralysis and a debt load equal to 120 percent of yearly economic output. If Italy’s borrowing costs become unsustainable, the country is potentially a much greater threat to Europe and the world economy than Greece.

“The current Italian government has lost the confidence of investors,” said Alessandro Giansanti, a rates strategist at ING in Amsterdam.

Elsewhere in the troubled euro zone, a big loss by an Austrian bank served as a reminder of the fragility of financial institutions, while a German supreme court decision scrambled efforts to speed up political decision-making.

The shift in mood was sudden and stopped a rally only a day after it began. On Thursday, major European indexes soared and bank shares rebounded following an all-nighter by European leaders that produced the boldest response yet to the debt crisis.

While major European stock indexes on Friday largely held on to their gains from the day before, investors seemed to be reflecting on the unanswered questions in the latest rescue package, which includes measures to bolster the resiliency of banks, to ease Greece’s crushing debt load and to turbocharge the euro area’s €440 billion, or $623 billion, rescue fund.

The benchmark indexes in Frankfurt, Paris and London were little changed at the end of trading Friday, while Italian shares fell 1.6 percent. The euro barely budged, trading at about $1.42.

The plan agreed to in Brussels early Thursday was short on details, which must be worked out by government technocrats in the weeks ahead. The pace is unsettling for markets, but that is the methodical way that European leaders are determined to operate. Elected officials are focused on their reluctant voters, not on investors impatient for bold initiatives.

“If you ask someone on the street, they’ll say they want the Deutsche mark back,” said Martin Lück, an economist at UBS in Frankfurt. “This is why the politicians need to move in a piecemeal fashion. They need to keep people on board.”

Germany’s Constitutional Court highlighted the complexity of European politics on Friday by issuing an injunction against a new panel in the German Parliament that is supposed to oversee the euro area rescue fund and accelerate decision making. Germany is the largest contributor to the fund.

Several dissident lawmakers complained to the court that Parliament did not have the right to delegate decision making to the panel, whose nine members were approved by a large majority on Wednesday. The court said Friday that the panel could not make decisions until judges had ruled on the merits of the complaint.

The parliamentary leader of Chancellor Angela Merkel’s conservative bloc, Peter Altmaier, said the decision meant that the entire Bundestag must decide on matters relating to the rescue fund, Reuters reported. But Mr. Altmaier insisted that the court decision would not interfere with operations of the fund, the European Financial Stability Facility.

“The German Parliament will ensure that, until the main ruling, Germany’s ability and the E.F.S.F.’s ability to act are secured,” Mr. Altmaier said, according to Reuters.

In Vienna, the Erste Group, an Austrian bank that is one of the most active institutions in Eastern Europe, reported a loss of €1.5 billion for the third quarter, caused by problems at its Hungarian and Romanian subsidiaries and a revaluation of its derivatives portfolio.

The bank, which also restated its 2010 earnings, had warned of the loss and the problems earlier in the month. Erste Group said Friday that it had sold almost all of a €5.2 billion portfolio of credit default swaps, a derivative the bank sold to customers as a form of insurance on government and corporate debt.

The disclosure about the swaps portfolio earlier this month raised questions about what other nasty surprises might be lurking in the balance sheets of European banks. Andreas Treichl, the chief executive of Erste Group, acknowledged that the bank had made mistakes. “We do have to accept the fact we caused a lot of concern,” he said during a conference call with analysts Friday.

Officials of the European Union and the International Monetary Fund hoped that the deal announced early Thursday would soothe market anxiety by easing the terms of Greece’s debt repayments enough to avoid default, as well as by building a war chest for safeguarding the larger Italian and Spanish economies against possible contagion.

Article source: http://www.nytimes.com/2011/10/29/business/global/italys-borrowing-costs-rise-amid-uncertainty-about-rescue.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Greeks Direct Anger at Germany and European Union

October 28, 2011 by Leave a Comment

Here in Greece, anger is running so high — especially toward Germany, whose Nazi occupation still leaves deep scars here and who now dominates the European Union’s bailout of debt-ridden Greece — that National Day celebrations were called off on Friday in the northern city of Thessaloniki for the first time ever after crowds shouted “traitor” to the Greek president, Karolos Papoulias.

“I was the one fighting the Germans,” Mr. Papoulias, 82, said on national television. “I am sorry for those who cursed at me. They should be ashamed of themselves. We fought for Greece. I was an insurgent from the age of 15. I fought the Nazis and the Germans, and now they call me a traitor?”

Beyond populist talk, which ranges from euro-skepticism to anti-German demagoguery, experts say the concessions that Greece has made in exchange for the foreign aid it needs to stave off default — including allowing European Union officials to monitor Greek state affairs closely — are unprecedented for an member nation, making Greece a bellwether for the future of European integration.

The European superpowers Germany and France are trying to translate the new deal, to accept a loss on part of Greece’s debt, into changing European Union treaties to give the union greater oversight of national budgets and to create tougher, more easily enforceable rules for countries that go astray.

After years of pay cuts and tax hikes that have pushed the Greek middle class to the breaking point, Greeks are not inclined to feel grateful to the so-called troika of foreign lenders — the European Union, European Central Bank and International Monetary Fund — that demanded austerity in exchange for loans. Instead, they increasingly feel they have become a de facto European Union protectorate.

“If we weren’t under the E.U., which is the only reason this loss of sovereignty may be justified, I’d have to say that Greece is an occupied country,” said Nikos Alivizatos, a constitutional lawyer in Athens.

Such feelings run so deep that after reaching a deal in Brussels this week for banks to accept a 50 percent loss on the face value of their Greek bonds, Prime Minister George Papandreou took great pains to explain that a new agreement — a troika presence until 2020 — would only offer technical assistance and was not tantamount to Greece relinquishing control of its fate.

“Nothing in this deal sacrifices our right to take our own decision. On the contrary, it will pave the way for us to freedom from dependency,” Mr. Papandreou said in a televised address.

But few Greeks agree. “Our politicians are just employees, simple employees,” said Margarita Tripolia, 17, a high school student who marched in the National Day parade. She, like other students, turned her face away from representatives of the government, church and military outside Parliament in a silent protest against the austerity measures and the direction the country was going.

But the sovereignty question goes far beyond street protest.

One highly delicate, unresolved question, in negotiations between the European Union and banks over the Greek debt deal, is whether future Greek bonds would be governed by international law, not Greek law, which currently governs 90 percent of Greek bonds. Such a change — aimed at preventing Greece from changing its laws to the detriment of creditors — would be unprecedented for a European Union member country.

Some argue that greater oversight is needed for Greece to push through the structural changes it promised in exchange for foreign aid. They say some loss of Greek sovereignty is a small price to pay considering that the new debt deal and eventual recapitalization of some banks comes at the expense of taxpayers from other European countries.

Dimitris Bounias contributed reporting.

Article source: http://www.nytimes.com/2011/10/29/world/europe/greeks-direct-anger-at-germany-and-european-union.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Bucks Blog: Chase Bank Won’t Impose Debit Card Fee

October 28, 2011 by Leave a Comment

A protester burns a Bank of America debit card outside a Chase bank in Seattle earlier this month.Associated PressA protester burned a Bank of America debit card outside a Chase bank branch in Seattle earlier this month.

JPMorgan Chase has decided against adopting a monthly fee for account holders who use debit cards for purchases.

Chase, one of the country’s largest retail banks, had been testing an account that included a $3 monthly fee for debit card use. But the test, which began in February and was limited to two states, is ending next month and won’t be extended or expanded, said a person with knowledge of the bank’s plans who did not want to be named because the bank has not announced its decision. (The development was first reported by The Wall Street Journal.)

The news last month that Bank of America was planning to add a $5 monthly fee for some accountholders who use debit cards set off widespread outrage from the bank’s customers. Bank of America has said it expected to impose the fees early next year.

The person with knowledge of Chase’s plans denied that the outcry over Bank of America’s announcement was the reason it decided not to impose the fee. Instead, the person said, the checking accounts without the debit card fees proved more popular.

Some big banks, like Citigroup, have previously said they won’t adopt fees for debit card purchases.

But two other large banks, SunTrust and Regions Bank, already have added monthly fees of $5 and $4, respectively, for some accountholders who make purchases with debit cards. (The fees don’t apply for use of the cards at A.T.M.’s.) Wells Fargo is testing a $3 fee in five states.

Banks are generally charging higher fees to help make up for revenue they lost after the federal government set limits on the fees they could charge merchants for processing debit card purchases.

Smaller banks and credit unions have been trying to capitalize on the backlash against big banks by recruiting new customers.

Does the move by Chase make you feel any better about large banks?

Article source: http://feeds.nytimes.com/click.phdo?i=238a534c16ec6c6acbe5a85df651f68a

Filed Under: Your Money Tagged With: , ,

Bucks Blog: A Different Sort of Investment Strategy

October 28, 2011 by Leave a Comment

In this week’s Wealth Matters column, Paul Sullivan writes about an analysis of over two decades of data on the performance of some 300 mutual funds. The idea was to determine which funds outperformed a benchmark — in this case, the Vanguard S.P. 500 Index Fund — over that time.

What the analysis showed was that the best-performing funds were not necessarily the ones with the lowest fees, the ones run by the best-known managers or the ones focused on any particular strategy. Instead, the funds that focused on small- and midcapitalization stocks (generally defined as companies with market capitalizations of $300 million to $10 billion) performed the best over this period.

While some mutual fund managers may complain about measuring their funds’ performance against the S.P. 500 Index, most investors, for better or worse, gauge their returns and overall financial well-being against one of the major indexes. After all, they care less about how their money is growing and more about whether it is growing.

The firm that ran the study, DAL Investments, uses data like this for its own unique investing style. Its “upgrading” strategy is meant to identify trends early and invest in those funds, regardless of what those trends are.

What is your investing strategy?

Below are the 20 funds that performed best in the analysis. But, as the fund managers themselves would say, past performance is no indication of future returns.

Article source: http://feeds.nytimes.com/click.phdo?i=9cc3e741bcd966292387ae44d6803a6b

Filed Under: Your Money Tagged With: , ,

Wealth Matters: The Best Investing Advice? Maybe Not the Conventional Method

October 28, 2011 by Leave a Comment

The best-performing funds over time were not necessarily the ones with the lowest fees, run by the best-known managers or focused on any particular strategy, according to more than 20 years of data examined by DAL Investments, an investment adviser and publisher of the NoLoad FundX newsletter in San Francisco. DAL analyzed the returns on 306 mutual funds for The New York Times.

Janet M. Brown, president of DAL Investments, said the deep dive was motivated as much by trying to figure out what worked as by testing the effectiveness of the firm’s own unconventional strategy. (More about that later.)

“The overall challenge of mutual fund investing is selecting funds in advance that people think will do well in the future,” Ms. Brown said. “The easiest thing would be to buy and hold or to select a manager with a good long-term track record and buy it and forget it. That was not an effective way of selecting funds.”

The 306 funds in the study were founded before 1989 and still exist. They all invest broadly with various styles and none concentrated on one sector. The data spans 21.75 years, from Dec. 31, 1989, to Sept. 30, 2011. The performance of the funds was measured against the Vanguard S. P. 500 Index Fund, which had annual returns of 7.65 percent during that time.

As much as people in the fund industry may want to measure their performance against a narrowly defined index, the reality is that most investors judge their returns against the S. P. 500, for better or worse.

So what did the study find?

PERFORMANCE Over the two decades of the data, no one investment strategy dominated, and most were successful for only four to five years, on average. Not one fund beat the benchmark every year.

In fact, most funds underperformed the S. P. 500 about a third of the time.

The top-performing mutual fund in the study was the FPA Capital Fund, which invests in small- and midcapitalization stocks, generally defined as companies with market capitalizations of $300 million to $10 billion. It had an annual return of 14.43 percent, and it beat the index 15 times.

The best manager against the benchmark was Bill Miller, chairman and chief investment officer of Legg Mason Capital Management. His Value Trust fund outperformed the benchmark in 16 of the 22 periods of the survey. Yet it ranked only 187, with an annualized return of 7.37 percent. This was lower than the benchmark.

The eighth-ranked fund in the survey, the Heartland Value, underperformed 10 times and still returned 11.66 percent annually. Its long-term performance demonstrated how stellar years attract the attention, but the bad years, when the fund kept losses in check, were more significant. The RS Investments Small Cap Growth fund, for example, underperformed the S. P. 500 more than it outperformed it, yet still beat it with an annual return of 9.85 percent.

The study also disputed the value of hitching your strategy to star managers. Mr. Miller was one example but so, too, were the various managers of Fidelity’s famous Magellan Fund. It underperformed the benchmark 14 times and ranked 222, with annual returns of 6.74 percent.

One reason star managers fail over the long term is that they become known for a particular style of investing that may go in and out of favor. DAL’s research found that no one style was dominant for the whole period. But funds focused on small- and midcap stocks did perform the best over this period. (Ms. Brown cautioned against reading anything into this for the future.)

“In my view, it has less to do with the brilliance of the portfolio manager as when their styles are in sync with the market,” she said.

EXPENSES One belief that investors take as gospel is that high expenses erode gains. On the one hand, this is obvious — the more that goes to the manager, the less that goes to you. But what the DAL study found was that there was only a slight correlation between lower expenses and higher performance. And the level of fees was not a determining factor in which funds beat the benchmark over the long term.

DAL divided the results into quintiles. Funds in the top performing group had fees that ranged from 0.45 to 2.01 percent. Funds in the middle had fees from 0.10 to 2.0 percent, while those in the worst-performing group had fees from 0.39 to 3.84 percent. (There were only three with fees higher than 2.5 percent.)

The expenses on the top-performing FPA Capital Fund were 0.87 percent. The average expense of the top 20 funds was 1.07 percent. The fund with the lowest expenses, the Fidelity Spartan 500 Index fund, was ranked 161st with an annual return of 7.58 percent.

The two worst-performing funds, the Stonebridge Institutional Small-Cap Growth Fund and Midas Magic, did charge the highest fees in the study at 3.4 and 3.84 percent. Their annual returns were 2.66 percent and 0.58 percent.

If expenses, and not return, were the primary concern, Ms. Brown said an investor should simply invest in an index fund and forget about it.

Article source: http://feeds.nytimes.com/click.phdo?i=8abfb36669fc2f720003a4d094ff3f9f

Filed Under: Your Money Tagged With: , ,

DealBook: MF Global Fights to Stay Afloat After Two Credit Downgrades

October 28, 2011 by Leave a Comment

Jon S. Corzine, the chief executive of MF Global, has tried to figure out ways to promote the firm's financial strengths.David Goldman for The New York TimesJon S. Corzine, the chief executive of MF Global, has tried to figure out ways to promote the firm’s financial strengths.

9:07 p.m. | Updated

MF Global, the commodities and derivatives brokerage house, was in a fight for its life Thursday night after the firm drew down its main credit line and two major credit ratings agencies cut their ratings on the firm to junk.

MF Global is scrambling to sell some or all of itself. The firm has enough assets to survive for at least the next few days, said a person outside the firm who was briefed on its condition.

The pressure on MF Global is mounting even as a deal over Greece’s debt has provided market relief to other American financial institutions. Investors have grown increasingly worried about MF Global’s capital position given its exposure to $6.3 billion in debt from Italy, Spain, Belgium, Ireland and Portugal.

But during the market day on Thursday, Fitch Ratings cut its credit rating on the firm to junk status, and shares of MF Global tumbled nearly 16 percent, even as other financial stocks surged.

Late on Thursday, Moody’s Investors Service cut its rating on MF Global for a second time this week, to Ba2 from Baa3. The downgrade to junk status, Moody’s said, “reflects our view that MF Global’s weak core profitability contributed to it taking on substantial risk in the form of its exposure to European sovereign debt in peripheral countries.”

The other major credit ratings agency, Standard Poor’s, warned on Wednesday that it might cut its ratings, too. The ratings downgrades could limit the number of counterparties willing to trade with MF Global.

To bolster its cash position, MF Global has tapped a $1.3 billion credit line at the parent company level, people briefed on the matter said Thursday evening. The firm still has financing available, including at least some of a $300 million revolving credit line in its broker-dealer subsidiary as well as bank overdrafts and letters of credit.

An MF Global spokeswoman, Tiffany Galvin, declined to comment.

People close to MF Global said that as of Thursday afternoon, only a small percentage of client funds — in the low single digits — had left the firm. Most of that appeared to be clients spreading their accounts across multiple brokerage houses.

These people added that the firm had adequate liquidity and that it was not contemplating filing for bankruptcy.

For days, analysts and investors have worried that time is running short for MF Global to solve its multiplying problems. The firm has hired Evercore Partners to help it assess strategic options, which include potentially selling its futures brokerage unit to a larger institution, according to people briefed on the deliberations.

But the firm is still considering other alternatives and has not settled on a definitive course of action, these people cautioned.

Within MF Global’s offices in Midtown Manhattan, the mood among the rank and file has been tense but defiant. Many employees have been working through the night talking to clients concerned about the speculation about the firm.

The firm’s chief executive, Jon S. Corzine, has held several firmwide conference calls to disseminate talking points on the company’s financial strength, according to a person with direct knowledge of the matter.

Many lower-level employees say they believe that talk about the firm’s troubles is overblown, and some have even bet on a comeback by buying MF Global shares for their personal accounts, this person said.

Major exchanges including the IntercontinentalExchange and the CME Group said that MF Global remained a clearing member in good standing as of Thursday afternoon, according to representatives for the bourses.

But that was before Bloomberg News reported that MF Global had drawn down its credit line.

Thursday’s downgrade marks the latest blow to MF Global, which Mr. Corzine, the former Goldman Sachs chief and former New Jersey governor, has sought to transform itself from a derivatives and commodities brokerage into a full-blown investment bank. A centerpiece of that plan included taking on additional risk, and potential profit, by making more trades using the firm’s own capital.

That plan has been dealt sharp setbacks over the past week, starting with a ratings downgrade by Moody’s on Monday and MF Global’s announcement of a $186 million quarterly loss the next day.

Article source: http://feeds.nytimes.com/click.phdo?i=9d1464a4fcbadeeaeff83abcd42f8125

Filed Under: Business News Tagged With: , ,

DealBook: Board Pay Rises 49% at British Companies

October 28, 2011 by Leave a Comment

LONDON — Executives at Britain’s biggest companies received an average pay increase of 49 percent this year, with compensation rising faster than companies’ shares.

The annual average pay of executives, including chief executives and finance chiefs, at Britain’s 100 largest publicly listed companies rose to £2.7 million, or $4.3 million, according to research by Incomes Data Services published Friday. Chief executives received an average 43.5 percent pay increase, to £3.9 million, the report said. The FTSE 100 share index rose 15.8 percent in the period from February last year to April 2011.

“Britain’s economy may be struggling to return to pre-recession levels of output, but the same cannot be said of FTSE 100 directors’ remuneration,” Steve Tatton, editor of the report, said in a statement. The pay includes salary, benefits, bonuses and long-term incentive plans.

Deborah Hargreaves, chairwoman of the High Pay Commission, an independent group that examines private sector pay, told BBC radio that it was “very hard to justify these sorts of pay increases” and that it was in the interest of the executives to keep the market rate for their positions high.

Article source: http://feeds.nytimes.com/click.phdo?i=643277b00ae630e7203e29f9395a7047

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