In regard to Edward A.H. Siedle's commentary, "Personal trading by mutual fund managers" (Others' Views, April 6):
It seems to me that if money managers are allowed to both create their own internal rules for their personal trading and self-police their compliance with these rules, it is only fitting that prospective clients be allowed to review these rules and the manager's compliance with them prior to making an investment decision.
Any money manager that would oppose disclosure of their records in this area would have a difficult time persuading me to entrust assets to them.
I would wonder: What do they have to hide?
Trustee and financial secretary
Public School Teachers' Pension
& Retirement Fund of Chicago
AIMR on personal trading
The April 6 Others' Views commentary, "Personal trading by mutual fund managers," contained a number of misleading statements that questioned the ethics of mutual-fund professionals.
The author contends that "the SEC has left it up to mutual fund managers to establish their own standards," implying that the fund manager and its board of directors are the only bodies involved in developing codes of ethics and standards for the investment community. This is not true.
The Association for Investment Management and Research, or AIMR, whose membership includes more than 33,000 investment professionals worldwide, devotes a significant amount of its resources to enhancing the standards of ethics and professional practices in the investment industry. The organization, which also acts as an investor advocate, is dedicated to empowering both institutional and individual investors with the knowledge to make more informed investment decisions.
In recognition of its role in setting standards of professional and ethical behavior for the industry, AIMR established a Personal Investing Task Force which spent four months in 1994 examining issues related to personal investing activities of money managers. The task force concluded that abusive practices in the investment industry are rare and that managers avoid trading extensively to benefit their own accounts. In cases where personal trading standards were violated, prompt action was taken -- primarily by investment firms -- to remedy problems. The conclusions reached by the AIMR task force match those of the Investment Company Institute and the Securities and Exchange Commission.
Following the 1994 AIMR and ICI recommendations, most mutual fund managers strengthened corporate codes of ethics by:
* Adding or tightening restrictions on certain investment professionals' participation in private offerings and IPOs;
* Implementing blackout periods, and;
* Tightening procedures for pre-clearing transactions, disclosing securities holdings and monitoring personal trading activities.
The article also raised questions regarding the potential conflict of interest faced by in-house legal counsel when monitoring the managers' personal trading compliance with the code of ethics. When in-house counsel is identified as the compliance officer responsible for monitoring personal trading of the fund manager, the counsel's duty is to the fund and its shareholders. In fact, codes of ethics of many mutual funds require the compliance officer to report to the fund's board of directors any material violations of the fund's code of ethics, as well as the action the compliance officer has taken to address violations.
Finally, one of the primary areas or scrutiny in an SEC inspection of a mutual fund is the fund's code of ethics, as well as the records maintained regarding compliance with the personal trading restrictions imposed by that code. This would seem to adequately answer the author's concern that personal investing activities are somehow held to be confidential.
AIMR believes that shaping the ethics of the investment industry from the inside is most effective. The AIMR ethical guidelines clearly articulate and enforce a strong and effective standard. This commitment to ethics is shaped by the knowledge that AIMR members involved in fund management are committed to the sole objective of outperforming client expectations -- on all levels of professional performance.
Thomas A. Bowman
President and chief executive officer
The Association for Investment
Management and Research
I would like to correct an inaccuracy contained in a letter to the editor, published under the byline of James McRitchie, which appeared in the March 23 issue.
Mr. McRitchie wrote that "The campaign contribution language (which bans political contributions by CalPERS contractors) impacts only the state treasurer and the state controller."
This is in error. The policy adopted by the board bans any board member, candidate for the board of administration, senior staff, or other fiduciary from accepting campaign contributions for any office from CalPERS contractors or potential contractors of CalPERS. The policy additionally requires that contractors or those seeking to do business with CalPERS must report any solicitation attempts by any board member, candidate for board office, senior manger, or fiduciary.
A summary of the board's ethics policies can be obtained from the Office of Public Affairs, 400 P St., Sacramento, CA 95818.
Patricia K. Macht
Chief, Office of Public Affairs
California Public Employees'
Wright proxy voting
Regarding the April 20, page 2 story "Managers vote against clients" by Steve Hemmerick, let me assure you that proxy voting issues are important to Wright Investors' Service.
I believe that we have already become more sensitive to, and aware of, union concerns on shareholders' issues. Prior to Mr. Hemmerick's story, Wright retained the services of a recognized independent consultant which advises us on specific labor proposals and provides commentary about what organized labor recommends regarding specific issues. We then vote on a case-by-case basis with a broader knowledge of labor's positions.
Peter M. Donovan
President and chief executive officer
Wright Investors' Service
Emerging market debt
I was pleased to note the Feb. 23, page 47 article about emerging country debt, which has been ignored for some time as an asset class. As the article notes, emerging country debt includes Brady bonds (hard currency -- usually dollar -- denoted restructured debt) and other tradable loans. We believe it provides an attractive alternative U.S. high-yield debt and emerging equities and should be considered as part of an allocation to a global bond portfolio.
Besides the two clients cited in your article, a number of other institutional investors have recently decided to invest in our emerging country debt fund.
The fund's strategy provides a value-based approach focused on issue selection, which is quite distinct from country allocation (and political forecasting) employed by many other firms. While this asset class is risky (unlike the comment made in your article, we do not agree with the view that a Brady bond will "never" default), we utilize methods to protect or armor plate the fund. This strategy has served us well in the Mexican, and the more recent, Asian crises.
GMO's Emerging Country Debt Fund has been the top-performing fund in the Frank Russell Universe since inception in April 1994. While our clients are well-aware of the risks with this asset class, their long-term investment horizons and willingness to exchange marketability for yield have provided valuable opportunities for significant returns from this asset class. Given the trend toward reform in many countries in Latin America, Africa and East Europe included in this particular universe, we expect that for long-term investors emerging country debt will continue to outperform other fixed-income asset classes.
John M. Balder
Grantham, Mayo, Van Otterloo & Co.