March 29, 2024

Strategies: How Companies Could Unlock Stashed Foreign Earnings

Deliberately bloating your own tax bill isn’t a common strategy, of course. To the contrary, an army of lawyers, accountants, lobbyists and executives is at work throughout corporate America, finding legal ways to minimize taxes and retain profits. One common approach for multinational corporations is to stash foreign earnings in low-tax countries, keeping the money out of the reach of the Internal Revenue Service.

But companies like Apple, which hold mountains of cash overseas, have come under a chorus of criticism for not doing something useful with their stranded money.

Robert A. Olstein, a forensic accountant turned money manager based in Purchase, N.Y., has an elegantly simple solution for Apple, as well as for Cisco Systems and Microsoft, which also keep billions of dollars abroad: he says they should repatriate the wealth — which would require them to pay billions in fresh United States taxes.

“What’s wrong with paying taxes?” asks Mr. Olstein, whose flagship mutual fund, the Olstein All Cap Value fund, holds shares in all three of these companies. “I pay taxes. These companies should be paying what they owe, too.”

Mr. Olstein’s analysis isn’t altruistic. He says that after paying taxes, the companies should use the remaining cash to buy back shares — a move that he calculates should drive up their price by at least 20 percent. As he sees it, by avoiding taxes and letting the money sit unproductively, they are sabotaging themselves.

“These companies have been letting the tail wag the dog,” he says. “They’ve been letting taxes determine their strategy, and that’s a basic mistake. You should never do that. You should have a good solid moneymaking strategy first, and only then worry about taxes.”

Tax avoidance is only one of the reasons for the big buildup of cash by American companies. According to a recent report, “Why Are Corporations Holding So Much Cash?” by the Federal Reserve Bank of St. Louis, risk aversion is another.

Kathleen M. Kahle, a finance professor at the University of Arizona who has studied the issue extensively, said, “As risk increases, executives get nervous and they want to hold cash for a rainy day.” Tech companies that rely on big research and development expenditures to spur innovation are inherently risky, she said, “so it’s not surprising that a company like Apple would build up a lot of cash.” But, she added, “I have little doubt that the United States corporate tax code,” which imposes a 35 percent marginal tax on domestic corporate earnings, “is causing companies like Apple to hold cash overseas.”

Whatever the reason, United States corporations have parked staggering sums abroad. Last year, analysts at JPMorgan Chase estimated that accumulated offshore profits for American companies amounted to $1.7 trillion. This month, Bloomberg News estimated that the mountain of cash had grown to more than $1.9 trillion.

Mr. Olstein says that while his logic should apply to a broad range of companies, he has focused on Apple, Cisco and Microsoft. “We’re shareholders of those three and know them well,” he said. “If they were investing it productively, fine. If they have a productive use for it now, fine, let them do it. But just leaving it there to avoid taxes? Come on.”

Mr. Olstein adds that he has no informed opinion about whether the domestic corporate tax rate is appropriate or whether it will eventually be lowered. But after President Obama’s re-election, he said, “it would seem that the probability of a major cut in the tax rate soon is unlikely.” If corporate executives believe that a lower rate is imminent, they should reveal their insights to shareholders, he said; otherwise “it’s time to accept reality.” Furthermore, he said, “We’ve got roads and bridges that need to be fixed and bills that need to be paid and that tax money would help.”

He says his position is fundamentally selfish, however, centered on what is best for shareholders.

He’s not opposed to another approach: moderately increasing these companies’ dividend yields. That would help siphon off at least some newly generated cash or some cash held domestically. But it wouldn’t liquidate the foreign cash hoards. David Einhorn, the hedge fund manager, has suggested that Apple issue a novel type of preferred stock intended to tap the foreign cash, which would pay guaranteed dividends. But Apple has rejected that proposal.

Article source: http://www.nytimes.com/2013/03/24/your-money/how-companies-could-unlock-stashed-foreign-earnings.html?partner=rss&emc=rss

DealBook: S.E.C. Weighs Suing Aletheia Manager

Peter J. Eichler Jr., chief executive of Aletheia Research and Management.Business News NetworkPeter J. Eichler Jr., chief executive of Aletheia Research and Management.

Federal regulators are preparing a civil fraud case against a prominent Los Angeles money manager, a government lawyer said at a court hearing on Wednesday.

The manager, Peter J. Eichler Jr., chief executive of Aletheia Research and Management, has received a so-called Wells notice from the Securities and Exchange Commission, an indication that the agency is considering an enforcement action.

Gary Leung, an S.E.C. staff lawyer, disclosed the potential lawsuit during a hearing in United States Bankruptcy Court in Los Angeles. Aletheia filed for bankruptcy protection on Nov. 11, and owes as much as $50 million.

A bankruptcy lawyer for Aletheia, Brian Davidoff, said that his client disputed the S.E.C.’s possible claims. A Wells notice typically gives the recipient a chance to dissuade the S.E.C. from proceeding with its case.

Regulators are said to be looking into accusations of improper trading, including whether client accounts were manipulated through the late allocation of trades. It is also examining whether money-losing trades were shifted from client accounts into Aletheia’s accounts, said a person briefed on the case who spoke on condition of anonymity.

The Justice Department has also taken an interest in Aletheia’s bankruptcy case. On Monday, prosecutors in the tax division of the United States attorney’s office in Los Angeles made a request with the bankruptcy court that it be notified of all pleadings filed in the case.

The S.E.C.’s warning is the latest setback for Mr. Eichler, who until recently was a highly regarded money manager. At its peak, Aletheia managed nearly $10 billion in assets and had a superior long-term investment track record that handily outperformed the Standard Poor’s 500-stock index. The firm’s flagship growth strategy attracted business from Goldman Sachs and Morgan Stanley, which both invested their clients’ money in Aletheia funds. Both banks have terminated their relationships with Aletheia.

Aletheia also drew attention for its involvement in several prominent shareholder fights, including when it teamed up with the billionaire investor Ronald Burkle to wage a proxy battle with the bookseller Barnes Noble.

Named after the Greek word for “truth and disclosure,” Aletheia was started in 1997 by Mr. Eichler, a former executive at Bear Stearns. He operated the firm out of wood-paneled headquarters at 100 Wilshire Boulevard in Santa Monica, a prestigious office building with commanding views of the Pacific Ocean.

But Mr. Eichler and Aletheia have been under a cloud since 2010, when a senior executive at the firm, Roger B. Peikin, filed an explosive wrongful-termination lawsuit. He depicted Mr. Eichler as a tyrannical boss who ruled Aletheia “with an iron fist” and operated the firm as his “personal fiefdom.” The complaint also accused Mr. Eichler of misconduct related to “general disregard for regulatory controls, wanton expenditure of corporate assets for Eichler’s personal benefit, and overall neglect of the business side of Aletheia’s operations.”

Aletheia has had mounting legal problems in recent years. It already had a dispute with the S.E.C. when, in 2011, it paid the agency $400,000 to settle civil charges related to deficient record-keeping.

The firm is also engaged in a legal fight with Proctor Investment Managers, a private equity firm based in New York, over the terms of a deal in which Proctor took a 10 percent stake in Aletheia.

Despite its legal woes and tepid performance across its funds, Aletheia still managed about $1.4 billion as of Sept. 30, according to securities filings.

A version of this article appeared in print on 11/22/2012, on page B5 of the NewYork edition with the headline: S.E.C. Weighs Suing Aletheia Manager.

Article source: http://dealbook.nytimes.com/2012/11/21/s-e-c-weighs-suing-aletheia-manager/?partner=rss&emc=rss

DealBook: S.E.C. Said to Be Investigating Money Manager’s Trading Practices

3:58 p.m. | Updated

The Securities and Exchange Commission is investigating a Los Angeles money manager over accusations of improper trading practices, according to two people with direct knowledge of the case.

The news of the investigation of Peter J. Eichler Jr., the money manager, came as his firm, Aletheia Research and Management, filed for bankruptcy protection late Sunday after a wave of client withdrawals amid weak performance and regulatory issues.

Aletheia, which at its peak managed about $8 billion, has drawn attention for its role in a number of shareholder fights, including a prominent battle with Barnes Noble that it waged alongside the billionaire investor Ronald W. Burkle.

Mr. Eichler did not return repeated requests for comment. Aletheia’s bankruptcy lawyer, Brian L. Davidoff, also did not return multiple calls.

The firm primarily manages stock portfolios for pension funds, foundations and wealthy families. Its strong investment performance — Aletheia’s flagship growth strategy has substantially outperformed the Standard Poor’s 500-stock index over the lpast decade — has attracted marquee clients including Michigan’s state pension fund and the Ewing Marion Kauffman Foundation in Kansas City, Mo. The brokerage units of Goldman Sachs and Morgan Stanley have also invested clients’ money in Aletheia’s funds.

Aletheia, named after the Greek word for “truth and disclosure,” was founded in 1997 by Mr. Eichler, who spent a decade at Bear Stearns before starting his own firm.

He is a third-generation Los Angeles money manager. Mr. Eichler’s grandfather started Bateman Eichler in 1931, which became one of the larger West Coast brokerage firms before it was sold to Kemper Securities in 1982. He is also the grandson of Henri de La Chapelle, an original partner of Paine Webber Jackson Curtis.

The S.E.C.’s is said to be looking into allegations of trading misconduct, including whether client account were manipulated through the late allocations of trades. It is also examining whether money-losing trades were moved from client accounts into Aletheia’s accounts, according to a person with direct knowledge of the case who requested anonymity because he was unauthorized to discuss the case publicly.

John Nester, a spokesman for the S.E.C., declined to comment.

Aletheia’s woes are the latest in a series of setbacks for the firm. In June 2011, it paid the S.E.C. $400,000 to settle civil charges brought by the commission related to its maintaining deficient books and records. Around that time, Aletheia named Steve Olson, a former federal prosecutor, as its president, only to see him depart within months.

Mr. Eichler was also sued in 2010 by one of the firm’s senior executives, Roger B. Peikin, who says he was wrongfully terminated. The lawsuit accused cited misconduct by Mr. Eichler of misconduct related to “trading practices, general disregard for regulatory controls, wanton expenditure of corporate assets for Eichler’s personal benefit, and overall neglect of the business side of Aletheia’s operations.”

In 2009, Proctor Investment Managers, a private equity firm based in New York, and Aletheia filed lawsuits against each other over the terms of a deal in which Proctor took a 10 percent stake in Aletheia.

Despite the various legal setbacks, Aletheia still managed $1.8 billion as of June 30, according to securities filings.

Aletheia owes millions of dollars to its creditors, according to its bankruptcy filing, which was made in United States Bankruptcy Court in Los Angeles late Sunday. Creditors include Proctor Investments, which is said to be owed $16 million by Aletheia; California’s state franchise tax board, which is said to be owed $2.5 million; and the law firm Bingham McCutchen, which has a claim for $730,000.

Mr. Peikin’s lawsuit highlighted Mr. Eichler’s lavish lifestyle, citing the use of private jets and $18,000-a-night hotel suites. It said that Mr. Eichler spent $7 million renovating the firm’s offices at 100 Wilshire Boulevard, a prestigious building with sweeping views of the Pacific Ocean.

The lawsuit also depicted Mr. Eichler as a tyrannical boss who ruled Aletheia “with an iron fist.”

“By hijacking control of Aletheia’s board and eliminating Peikin from all management decisions, Eichler has successfully rid himself of all internal controls, allowing him free reign to operate Aletheia as his personal fiefdom,” the complaint said.

Mr. Eichler, 54, who is driven around Los Angeles in a Maybach sedan, has recently made two large real estate purchases, according to records , buying a $4.5 million home in the Pacific Palisades and a $15 million beachfront house in Malibu.

Aletheia has appeared most prominently in the business press media for a number of large stock investments alongside Mr. Burkle, including a big stake in Barnes Noble in 2010. The position led to litigation over whether Mr. Burkle and Mr. Eichler were improperly colluding to accumulate a controlling position in the company.

During the case, a Delaware judge mocked Mr. Eichler for repeatedly following tagging along with Mr. Burkle on his investments. The judge wrote that the chance for Mr. Eichler to discuss stocks with Mr. Burkle was like an aspiring songwriter “getting to trade licks and lyrics with Bob Dylan.”

Aletheia Research and Management’s bankruptcy petition

Article source: http://dealbook.nytimes.com/2012/11/12/los-angeles-money-manager-aletheia-files-for-bankruptcy/?partner=rss&emc=rss

DealBook: Credit Suisse Raises Capital Reserves as Profit Increases

A branch of Credit Suisse in Basel, Switzerland. The I.R.S. asked for help in locating information on American account holders.Arnd Wiegmann/ReutersA branch of Credit Suisse in Basel, Switzerland.

4:25 a.m. | Updated

LONDON – Credit Suisse said on Wednesday that its net profit rose 2.6 percent in the second quarter, as the bank announced a number of measures to increase its capital reserves in response to concerns from Switzerland’s central bank.

Credit Suisse said the steps to improve its capital base included issuing bonds to investors that convert into shares, as well as the sale of financial assets.

The measures will add 8.7 billion Swiss francs ($8.9 billion) to its capital reserves by the end of July. The bank expects to raise an additional 6.6 billion francs by the end of the year.

The European bank said it was tapping several existing global investors, including the giant money manager BlackRock, as well as new investors including Singapore’s sovereign wealth fund, Temasek, to increase the bank’s capital position.

The steps come after the Swiss National Bank singled out Credit Suisse last month as a bank that needed to “significantly expand its loss-absorbing capital during the current year.” Credit Suisse’s local rival, UBS, should just continue with its efforts to strengthen its capital, the central bank said.

At the time, Credit Suisse said it was “comfortable” with its progress toward increasing capital reserves. The bank said on Wednesday that it was responding to the calls from the Swiss central bank.

Credit Suisse’s chief executive, Brady W. Dougan, told investors on a conference call on Wednesday that he disagreed with the Swiss central bank’s statement about the firm’s capital position, but the Swiss bank had responded to calm concerns about its financial strength.

“The capital measures that we announced today take any question of the strength of our capitalization off the table,” Mr. Dougan said in a statement. “This is a robust and balanced set of capital initiatives.”

In response to the improvement in the bank’s capital position, the Swiss National Bank said it supported the steps.

“In an environment that remains particularly challenging for the international banking system, these measures substantially increase the resilience of Credit Suisse,” the Swiss central bank said in a statement.

Credit Suisse said the steps would increase its core Tier 1 capital ratio, a measure of firm’s ability to weather financial shocks, to 9.4 percent by the end of the year, compared with 7 percent at the end of the second quarter.

The bank’s share price rose 6.2 percent in morning trading in Zurich. Stock in the Swiss firm has fallen 39 percent in the last 12 months.

Credit Suisse also said it had achieved 2 billion francs of costs savings during the first six months of the year, and would now look for an additional 1 billion francs of savings by the end of 2013.

As part of the new cost savings sought by the end of next year, 550 million francs will come from the firm’s global investment banking unit, according to a company statement. The bank has previously said it intends to reduce its European investment banking division. An additional 450 million francs of savings will be extracted from the firm’s private banking division.

Net profit in the three months ended June 30 rose to 788 million francs from 768 million francs in the period a year earlier, while net revenue dropped to 6.2 billion francs from 6.9 billion francs.

Despite market volatility caused by the European debt crisis, pretax profit in Credit Suisse’s investment banking unit rose 84 percent, to 383 million francs. Pretax profit at the firm’s private banking division fell 7 percent, to 775 million. The bank did not provide the net profit figures.

Article source: http://dealbook.nytimes.com/2012/07/18/credit-suisse-boosts-capital-reserves-as-profit-rises/?partner=rss&emc=rss

DealBook: A Good Day for Groupon and Internet Start-Ups

Andrew Mason, the chief executive of Groupon, was all smiles at the Nasdaq MarketSite as shares of his company began trading.Stephen Yang/Bloomberg NewsAndrew Mason, the chief executive of Groupon, was all smiles at the Nasdaq MarketSite as shares of his company began trading.

After a months-long journey filled with blunders, Groupon punched its ticket to the public markets on Friday. And the daily deals site got a warm reception, a welcome sign for Internet start-ups still waiting to go public.

The initial public offering, which was priced at $20 the night before, soared 40 percent at the opening bell to hit $28. Shares breached $31, before settling at $26.11 at the close, valuing the three-year old company at $16.5 billion.

At $700 million, the offering is the largest for a Internet company in the United States since Google in 2004. Groupon is also the first major company to go public since August, when European sovereign debt fears rattled investors and sent the I.P.O. market into a deep freeze.

“Groupon’s I.P.O. certainly helps the U.S. market for technology offerings,” said Josef Schuster, a money manager at IPOX Schuster. “It indicates that people are willing to take risk again.”

Friday’s surge was especially encouraging given the recent criticism of Groupon’s business model and lack of profitability. In recent months, several analysts loudly questioned whether the company was worth even $5 billion — let alone its current 11 figures.

Though it remains to be seen how Groupon will trade in the coming months, analysts say its strong first-day could usher in a second wave of investor enthusiasm for the next generation of Internet start-ups and embolden those companies seeking to go public. Zynga, which amended its filing on Friday with updated financials, is on track to make its debut within the next few months. Facebook, a towering giant of the Web, is expected to follow sometime in 2012 with an offering that values the company at more than $80 billion.

Some newly public companies are already re-upping. LinkedIn, which had a successful debut in May, with shares more than doubling on the first day of trading, announced that it was planning to offer up to $500 million in additional shares.

“People were looking for reasons to be optimistic, well, they found it,” said Michael Duda, a venture capitalist at Consigliere, a consumer investment firm. “If you’re Zynga’s founder, Mark Pincus, you’re probably doing back flips.” Still, Mr. Duda noted, he did not invest in Groupon. “I wouldn’t touch it personally.”

The question is whether Groupon will be able to move higher from here. Analysts are still skeptical that Groupon’s fundamentals justify the market value — a fear that echoed the dot-com boom in the late 1990s.

“The risk is to the downside from here,” said Mr. Schuster, who decided not to buy Groupon shares on Friday. “This will be popular for short-term traders.”

Groupon, like LinkedIn and Zynga, is part of an elite cadre of start-ups that swiftly soared to multibillion-dollar valuations, capitalizing on the growth of online social networks. The group’s ascent over the last two years set off a broader buying frenzy in Silicon Valley. Investors of all sorts eager to own a piece of the next great thing plowed millions into the new generation of start-ups, flooding the markets with capital and bidding up prices across the board.

Against that backdrop, a rush of technology companies went public, like Yandex, a Russian search engine, and Pandora, the online music service. In the first half of this year, the technology sector propped up the larger I.P.O. market. Technology offerings have accounted for about a third of all offerings this year, according to data from Renaissance Capital, an I.P.O. advisory firm.

But the enthusiasm, which seemed to reach a fever pitch earlier this summer, started to cool in August amid volatility in the equity markets and macroeconomic fears.

At that point, Groupon’s bankers, lead by Morgan Stanley, Goldman Sachs and Credit Suisse, cut their estimates for pricing, according to one person with direct knowledge of the matter who was not permitted to talk about the offering publicly. It did not help that the Internet company was also working through accounting issues with regulators who frowned on how Groupon was representing its revenue.

As September dragged on, the underwriters encouraged the company to push ahead with an offering, despite the turmoil. The market was less than ideal and the press was far from glowing, but the plan was to pursue a smaller offering, in size and in price, that would allow the company to go public and put all the related distractions behind it.

Confidence started to build in October, as the management team and its underwriters began a two-week road show across the country. Almost immediately, investors started to place orders, several people said. After deep conversations with some of the largest potential buyers, the underwriters tested a higher price, above the initial target of $16 to $18 a share.

The company’s underwriters tried to give more allocations to established mutual funds, known for buying and holding, instead of less predictable hedge funds suspected of seeking a quick buck, according to two people with knowledge of the matter who were not authorized to discuss the matter publicly.

Some investors expressed interest in paying more than $20 a share, but the bankers wanted to give some space, instead of “pricing to the last available dollar,” one of the people said. The underwriters, following the lead of companies like LinkedIn and Pandora, also kept the offering small, at little more than 5 percent of the total shares.

In the end, demand was so high that orders were more than 10 times the amount of the shares offered.

The successes of Groupon and other newly public Internet companies could be a good omen for the sector. While shares of LinkedIn have pulled back since their debut, the professional social networking site is valued at $8 billion. Zynga, which recently raised funds at a $10 billion valuation, has not had as many public stumbles and is expected to be embraced by investors.

The start-up scene in Silicon Valley may also see a boost.

“Groupon’s I.P.O. is a natural lozenge that will loosen stuff up,” Mr. Duda, the venture capitalist, said. “Confidence is rising, I’ve seen more deal flow in the past 30 to 45 days, than I’ve seen in the last three to five months.”

Article source: http://feeds.nytimes.com/click.phdo?i=f446815e89749513b2f40f16a79d93f3

Bucks Blog: Questioning a Standard Piece of Investment Advice

The long list of economic problems around the world — from high unemployment and legislative gridlock in the United States to deep debt problems in Europe — makes these scary times for investors, Paul Sullivan writes in his Wealth Matters column this week. The usual advice is to focus on a long-term plan and not abandon it when the times get tough.

But Paul notes a new study that raises questions about another standard piece of investing advice — investing money regularly over a period of time. This is the type of investing, known as dollar-cost averaging, behind 401(k) plans. The idea is that regular purchases reduce the risk of investing a large amount in a single investment at the wrong time.

But the new study, from Gerstein Fisher, a New York money manager, found that investing a lump sum yielded better results over a 20-year period than investing the same amount of money in equal amounts over 12 months. “The faster you invest the money the better you do,” Gregg Fisher the president and chief investment officer of Gerstein Fisher, told Paul.

What is your investment strategy? Have you found a way to ride out the market?

Article source: http://feeds.nytimes.com/click.phdo?i=c9117824937990bef91b4eee921bff90

Bucks Blog: MarketRiders Tweaks Its Investment Mix

Courtesy of MarketRiders

Review

Evaluating new financial products and services.

MarketRiders, the online service that helps you build and manage an investment portfolio, recently sent me an e-mail telling me it was time to rebalance a Roth I.R.A. Since the hurricane kept me indoors for most of the weekend, I figured it was the perfect time to check this task off my to-do list.

But when I entered the MarketRiders’ Web site, I noticed several changes. So when I got back to work this week, I called up Mitch Tuchman, the company’s chief executive, to walk me through them. He also told me about a couple of other improvements in progress, including one that will please Vanguard fans: Starting this week, MarketRiders users can build and track portfolios comprised of Vanguard index funds.

Here’s a quick look at what’s changed:

Portfolios MarketRiders made a couple of tweaks to its recommended investment portfolios, which are largely comprised of exchange-traded funds, the popular investments that are basically index funds that trade like stocks. The company recently decided to alter its recommended investment mix, adding a helping of small-capitalization stocks and high-yield corporate bonds. But this wasn’t a tactical shift in response to market conditions, or anything of the sort. After all, MarketRiders advocates holding a diversified collection of low-cost investments that track broad swaths of the market, namely exchange-traded funds.

Instead, Mr. Tuchman said that after doing extensive research, he decided to incorporate small-capitalization and value stocks because they tend to outperform the broader market over time. This is a view held by Dimensional Fund Advisors, a money-manager and mutual fund company that also believes that few fund managers can pick stocks or other investments that outperform the market over the long haul.

“The bigger story or idea here is that I am trying to use E.T.F.’s to mimic a D.F.A. portfolio for the do-it-yourselfer,” Mr. Tuchman said, adding that he invests his own money, as well has his parents’ and sisters’ savings, using MarketRiders’ recommendations.

He said the company decided to incorporate high-yield bonds because, without them, it wasn’t really fulfilling its goal to index, or track, the entire bond market. He also said he felt it lowered the overall risk of the bond portfolio since high-yield bond funds tend to have bonds with shorter maturities. “To completely satisfy our mission, we needed to add that component,” he said.

If you already have a MarketRiders account and want to incorporate these changes, Mr. Tuchman said, there will soon be a button under the “change my portfolio” link that will ask if you want to update your portfolio with the new allocations.

Vanguard Funds Vanguard diehards will appreciate this new feature: Starting this week, MarketRiders will recommend portfolios using Vanguard index funds. To use this feature, go to “Create a new portfolio,” then “Let me build it,” then click on the tab that says “Use a Template.” There will be nine portfolios — which will range from 10 percent bonds to 90 percent bonds — that mirror its E.T.F. portfolios. (In fact, there will actually be two sets of fund portfolios — one using Vanguard’s regular share class, known as investor shares, and one using its Admiral shares, which are a less expensive share class available to investors with more than $10,000 to invest in each fund.)

But since it will be up to you to choose the template that best suits your situation and goals, you may want to first build a dummy E.T.F. portfolio. That way, you can fill out the MarketRiders questionnaire and see what template it recommends. Once you have that information, you’ll know that, for instance, you want to chose the “growth focus — 30 percent bonds starter portfolio.”

You can also track Vanguard fund portfolios of your own creation. To do that, go back to “Create a portfolio,” then “Let me build it,” and choose the option on the far right that says “Enter my funds.”  Then, all you need to do is enter the fund’s (or E.T.F.) symbol, the number of shares and how much you paid for them and when. The portfolio you enter will become your target allocation, and you will receive e-mails when it is time to rebalance your portfolio back to that allocation.

Annual Review Users can now perform a “portfolio review,” something you may want to do each year so that you can update your age, time horizon and risk tolerance as those factors evolve. (This option is located under the “Change my portfolio” tab.) “It effectively allows you to manage your money like a target-date fund, but it’s customized for you,” Mr. Tuchman said, referring to the mutual funds whose mix of investments becomes gradually more conservative as you near retirement. The new button also allows you to customize your portfolio manually, though this option is generally geared for people with substantial investment expertise.

Broker Optimization Last year, after several online brokerages began to waive trading fees on some or all of their exchange-traded funds, MarketRiders added a feature (We wrote about it here.) that allowed users to designate a “preferred E.T.F. provider,” which included Schwab, Vanguard and iShares (the E.T.F.’s offered at Fidelity). By knowing where you keep your money, MarketRiders can recommend a portfolio that emphasizes E.T.F.’s that trade for free.

Over the past year, the service added TD Ameritrade to its lineup, but it has also made this feature more user-friendly. Now, when you ask MarketRiders to build your portfolio, it will automatically substitute in E.T.F.’s that trade for free once you enter the name of your broker.

If you unclick the button that says “Optimize the E.T.F.’s in my portfolio for low trading costs” you will see the standard portfolio recommendation, but it will probably have fewer green tags, which indicate which E.T.F.’s waive their trading fees. And at the bottom of the screen, you can always see how much the portfolios cost to purchase and the total number of E.T.F.’s that waive trading costs.

Mr. Tuchman said that it’s often most cost-effective for MarketRiders users to use TD Ameritrade, since there are only two E.T.F.’s (out of their recommended portfolio of 14 E.T.F.’s) that do not trade for free in an optimized portfolio.

Coming Soon Since I chose to automatically reinvest my dividends in my E.T.F. portfolio, I ended up with fractional shares (since the dividends weren’t enough to buy a full share). MarketRiders doesn’t recognize fractional shares, so one of my I.R.A.’s fell out of sync with MarketRiders’ system. Thankfully, Mr. Tuchman said, the site will soon recognize fractional shares in the months ahead.

I like MarketRiders because it jibes with my investment philosophy,  and reminds me exactly what I need to do and when: “Buy 10 shares of this, sell five shares of that.” And it costs me little more than my Netflix subscription.

But there are many other online portfolio management services on the market. Have you tried any of them? Please drop your thoughts in the comment section below.

Article source: http://feeds.nytimes.com/click.phdo?i=2316b7d297e17061f1d6eeff75f7bc37

DealBook: FrontPoint’s Eisman to Depart Hedge Fund Firm

Steve Eisman — the colorful hedge fund manager who made a fortune betting against the subprime mortgage market — is leaving FrontPoint Partners, according to people familiar with the matter.

His departure is another blow for the hedge fund firm, which came under pressure late last year amid an insider trading scandal. The controversy prompted investors to pull billions of dollars from FrontPoint, a loss of capital that culminated in the firm deciding to shutter most of its funds last month.

Rumors of Mr. Eisman’s pending departure began circulating earlier this year. A source close to Mr. Eisman said he was disappointed that his fund suffered heavy redemption requests as a result of the scandal, despite the fact his funds were completely unrelated. Two of Mr. Eisman’s three funds at FrontPoint had suffered nearly a half billion dollars in redemption requests at the time.

While the firm has never been accused of wrongdoing, a former FrontPoint portfolio manager, Joseph Skowron, was charged by federal authorities in April. Mr. Skowron is accused of paying for inside tips about a clinical drug trial, information that saved his fund $30 million in losses.

AR Magazine previously reported news of Mr. Eisman’s departure.

Mr. Eisman is the most high-profile manager at FrontPoint, thanks in large part to a prominent role he played in “The Big Short,” Michael Lewis’ bestselling book about the financial crisis.

It’s unclear what Mr. Eisman will do next. But a source close to the money manager says he eventually plans to launch a new fund.

FrontPoint has been devastated by the insider trading mess. Last month, the firm said it planned to shutter its flagship fund, which accounted for the bulk of the firms assets. It will retain four strategies: the Quant Macro Fund, Strategic Credit Fund, Rockbay Fund and a direct lending fund.

Article source: http://feeds.nytimes.com/click.phdo?i=1b63cbe676012cdd35153fe98e21728c

Fair Game: Enriching a Few at the Expense of Many

To this, Albert Meyer, a money manager at Bastiat Capital in Plano, Tex., responds with a resounding “phooey.”

Executive pay is not only a sign of how a company views its duties to shareholders, Mr. Meyer says, but it is also a crucial tire to kick when making investment decisions.

“When compensation is excessive, that should be a red flag,” Mr. Meyer says. “Does the company exist for the benefit of shareholders or insiders?”

As investors scan corporate proxy statements this spring and prepare to vote in annual elections for company directors, executive pay is again moving to center stage. After a few years in the wilderness, top executives are getting hefty raises, according to Equilar, a compensation analysis firm in Redwood City, Calif. But while outrage over executive pay has been eclipsed in recent years by anger over the causes and consequences of the financial crisis, compensation issues still resonate among many investors.

Of course, pay is just one item that Mr. Meyer takes into account when analyzing companies. In his search for shares he can own “forever,” he also hunts for companies with high-quality earnings — that is, those that don’t depend on accounting tricks — as well as generous cash flows and management integrity. Companies he avoids include those that award oodles of stock or options to their executives. Such grants vastly dilute the earnings left over for a company’s owners: its shareholders.

“Stock-based compensation plans are often nothing more than legalized front-running, insider trading and stock-watering all wrapped up in one package,” Mr. Meyer says.

A former professor of accounting, he earned recognition when he identified a Ponzi scheme in Philadelphia that had scammed nonprofits out of hundreds of millions of dollars. It was called the Foundation for New Era Philanthropy, and it went bankrupt in 1995. As an equity analyst, he has identified aggressive accounting at Tyco, Enron and other companies over the years.

At Bastiat Capital, a money management firm he founded in 2006, Mr. Meyer oversees $25 million in private clients’ capital. About $8 million of that is invested in the Mirzam Capital Appreciation mutual fund, which he manages. It is up an annualized 4.5 percent, after expenses, since its inception in August 2007. It is up 4.57 percent this year.

His interest in executive pay has led Mr. Meyer to a raft of international companies whose pay and other corporate governance practices are, in his view, more respectful of shareholders than those of similar companies in the United States. He cites as good stewards Statoil, the Norwegian energy company; Telefónica, the Spanish telecommunications concern; CPFL Energia, a Brazilian electricity distributor; and Southern Copper of Phoenix, a mining company with operations in Peru and Mexico. These and other companies he favors have performed well, while paying relatively modest amounts to executives, he says.

Mr. Meyer’s favorite pay-and-performance comparison pits Statoil against ExxonMobil. Statoil, which is two-thirds owned by the Norwegian government, pays its top executives a small fraction of what ExxonMobil pays its leaders. But Statoil’s share price has outperformed Exxon’s since the Norwegian company went public in October 2001. Through March, its stock climbed 22.3 percent a year, on average, Mr. Meyer notes. During the same period, Exxon’s shares rose an average of 11.4 percent annually, while the Standard Poor’s 500-stock index returned 1.67 percent, annualized.

According to regulatory filings, Statoil paid Helge Lund, its chief executive, 11.5 million Norwegian krone in 2010 (roughly $1.8 million at the exchange rate last year). There were no stock options in the mix, but Mr. Lund was required to use part of his cash pay to buy shares in the company and to hold onto them for at least three years.

By comparison, Rex W. Tillerson, the chief executive of ExxonMobil, received $21.7 million in salary, bonus and stock awards in 2009, the most recent pay figures available from the company. Mr. Tillerson’s pay is more than double the combined $8.3 million that Statoil paid its nine top executives in 2010.

OTHER aspects of Statoil’s governance also appeal to Mr. Meyer. Its 10-member board includes three people who represent the company’s workers; management is not represented on the board. In addition, Statoil has an oversight group known as a corporate assembly, something that is required under Norwegian law for companies employing more than 200 workers. This 18-person group oversees the company’s directors and the chief executive’s management and makes decisions about Statoil’s operations that affect its work force. The assembly members are elected for two-year terms; shareholders elect 12 and workers elect 6.

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