Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
October 18, 2004 01:00 AM

‘We broke the rule’

Barry B. Burr
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    At Bridgeway Funds Inc., candor is a constant philosophy, even in the face of adversity and even when that adversity involves a settlement with the Securities and Exchange Commission.

    As John Montgomery, Bridgeway president, noted in a recent letter to the mutual fund company's shareholders: "One principle that guides our decisions, both large and small, is considering the question ‘What is in the best long-term interests of current shareholders?' A tradition that has grown out of this philosophy is reporting to shareholders in the annual report what we consider to have been the worst thing that happened during the fiscal year."

    That declaration introduces an explanation of the SEC settlement with Bridgeway and Mr. Montgomery. His letter is remarkably candid, acknowledging "…we broke the rule…" and "I am the one at fault." Those admissions stand in contrast to the statements of other mutual fund companies settling with the SEC over alleged improper activities. As one such statement at another mutual fund company reads, "…the SEC made certain findings of fact and violations, which (the company) neither admitted or denied."

    Mutual fund shareholders must be weary of seeing such noncommittal statements, especially when the companies then ask for a renewal of trust and continued money management.

    Mr. Montgomery's frankness is refreshing. As his letter says, "From a shareholder's point of view, I would want my fund manager to answer these questions about the settlement…" He proceeds to address five questions, including:

    "1. What happened? In a nutshell, for eight and a half years Bridgeway was out of compliance with Rule 205-2 of the Investment Advisers Act of 1940 concerning the calculation of performance-based management fees…. Because the average net assets were generally increasing over time and each fund had beaten its market benchmark over most time periods, three funds overpaid advisory fees.

    "2. How serious is it? Plain and simple, we broke the rule, which is the same as the underlying law. We believe that breaking any law is serious…. I have been a major proponent of performance-based fees in the industry, having spoken to industry players and the media on many occasions. Any time you take a strong position, you should have a firm grasp on the full legal requirements that surround that position. Bridgeway Capital Management (the funds' adviser) and I, specifically, should have sought specialized legal counsel on this issue long ago.

    "3. Is anyone taking responsibility? Yes. As founder of Bridgeway Capital Management and president of Bridgeway Funds, this calculation was absolutely my responsibility, and I am the one at fault. Rule 205-2 is the definitive rule of law with respect to performance-based fees in a mutual fund structure, and Bridgeway was calculating them incorrectly."

    The letter details the fines Bridgeway Capital and Mr. Montgomery will pay to the U.S. Treasury and a financial remedy for shareholders. He notes that Bridgeway Capital overcharged a net $4.4 million, which Bridgeway Capital, not the funds, will repay plus $0.5 million in interest to current and previous shareholders of the three Bridgeway funds. That proposed repayment requires SEC approval.

    Mr. Montgomery also detailed actions initiated to ensure the problem doesn't recur. His letter concludes, saying, "I'd like to apologize personally to our shareholders … and to all others who have placed their trust in us."

    Candor and a philosophy of keeping shareholder interest the priority don't always prevent problems. But that kind of attention gives investors more confidence that problems will be dispatched with their interest paramount.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    July 29, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    The market opportunity in U.S. residential mortgage-backed securities
    Credit Indices Evolve with Enhanced Data Inputs
    Hedge Funds 2.0: Back to the future
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Crossroads: Politics, Inflation, & Bonds
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit