WESTPORT, Conn. - Officials for The Common Fund have come up with final figures for losses taken in a securities lending program with First Capital Strategists Inc., and as a result requested the return of $1.4 million from former Common Fund members.
Common Fund executives discovered in June that a trader at First Capital Strategists, York, Pa., had not been completing both sides of arbitrage trades in its securities lending program, effectively giving Common Fund securities lending clients undesired long or short exposure to the stock market.
The unauthorized trades resulted in total losses of $137.6 million, said David Storrs, chief executive and president of The Common Fund. A $3 million reserve for securities lending losses will cover some of that, he said. In addition, an anonymous money manager for The Common Fund made a $1.6 million contribution to the fund, according to an October memorandum to members.
About 1%, or $1.4 million, of the losses has been allocated to investors who are no longer members of the fund, and have therefore been asked to give back some of the money they received when selling out of the fund, Mr. Storrs said.
The Common Fund accounts for ownership in its funds similar to mutual funds. So if the fund has been valued too highly, because of the First Capital losses, some investors sold out at too high a price, and effectively owe the funds some money.
Letters have gone out requesting the return of amounts as small as $6.10, and as large as six- figure sums. Some are cooperating, and others are saying they won't be paying it back, Mr. Storrs said. In the same way, investors who bought in at inflated values are owed money because they paid too much for their ownership.
For current members of The Common Fund, their accounts are being credited or debited with shares to make up the differences caused by the losses.
First Capital Strategists is now closed, and Kent Ahrens, the trader accused of making unauthorized trades, has been sued by The Common Fund. Mr. Storrs also said Common Fund executives anticipate getting a substantial sum back from First Capital in settlement for the losses.
The First Capital securities lending program charged The Common Fund no fees, but divided profits among First Capital, Common Fund members and The Common Fund itself, which has received $14.9 million from the securities lending program. (First Capital took 25% to 33%, depending on the strategy; fund members got 50% to 45%; and The Common Fund received 25% to 22%).
MENLO PARK, Calif. - The Stanford University endowment, Menlo Park, allocated 1% of its assets to a passive, non-leveraged investment in Goldman Sachs Commodity Index futures contracts, industry sources say.
Officials at Stanford declined to comment. Stanford has $3.6 billion in its endowment, according to the 1996 Nelson's Directory of Plan Sponsors.
The allocation is a pilot program being run in-house, and some in the industry said record open interest in the GSCI contract at the Chicago Mercantile Exchange is in part caused by Stanford's program. Commodities generally are used to hedge against inflation, and to try to dampen overall volatility in a portfolio.