Seventy-nine percent of 401(k) plans had a qualified default investment alternative at the end of 2007, the first year for QDIAs under the Pension Protection Act, with target-date funds the QDIA of choice, according to a Callan Associates survey. Nearly half that offer or anticipate offering a target-date or target-risk fund as the QDIA will use a mutual fund structure. Eighteen percent currently use or intend to use a custom mix of funds for their QDIA, up from 11% from last year's QDIA Survey. Also, 44% offered automatic enrollment, with another 6% stating they were likely to add it in 2008. Callan surveyed 90 clients that are large plan sponsors.
News Briefs:Callan: 79% use QDIA
Los Angeles City Employees' Retirement System decreased its domestic small-cap equity allocation to 20% of the system's $4 billion domestic equity portfolio, from 25.3%, according to Robert Aguallo Jr., general manager. Half will be used to fund the system's new $450 million allocation to activist corporate governance managers, and the other half will be divided between large-cap equity index managers BGI, which had managed $500 million, and RhumbLine, which currently runs a $1 billion portfolio. No new searches will result. The $10.5 billion system plans to trim a total of $200 million from some of its small-cap equity managers Thomson Horstmann & Bryant, Franklin Global Advisors, SIT, Donald Smith & Co. and PanAgora Asset Management, he said. However, the staff has not made any decisions on which manager's portfolio would be affected.
Separately, the board renewed the contract of Capital Guardian Trust, which runs $527 million in active European equities, for one year, but placed the manager on watch for negative performance net of fees. Capital Guardian does not comment on clients or client actions, said CapGuardian spokeswoman Maura Griffin. The board also retained SSgA, which manages a $701 million MSCI World ex-U.S. index portfolio.
The booming manager-of-managers business offers a compelling opportunity for third-party investment managers to increase their assets under management, according to a new Cerulli Associates report. Although more than 97% of the institutional manager-of-manager market share has been claimed by three players Russell Investments, 38%; SEI Investments, 33%; and Northern Trust, 26% smaller firms have grabbed 65% of the retail business. Working for smaller manager-of-manager firms might earn subadvisers higher management fees because they lack the pricing power of powerhouses like Russell and SEI, according to Cerulli.
Globally, pension reforms will cause contributions to defined contribution plans to swell, and Cerulli predicts retail manager-of-manager assets will grow 15% annually to an estimated $443.8 billion in 2011 from an estimated $253.8 billion in 2007. Of managers of managers contacted by Cerulli, 77% said they welcomed asset managers called to set up meetings assuming (managers have) reasonable performance and pedigree.
The $16 billion Teachers' Retirement System of Louisiana committed $50 million to the Tishman Speyer Real Estate Venture VII fund at its March 3 meeting. Hamilton Lane Advisors assisted.
NYSE Euronext said it started routing U.S. stock orders to the 29 broker-dealers and alternative trading systems, or dark pools, that want to participate in the new program. The NYSE Arca service, which will include price improvement or the guarantee to execute orders at a price within the best bid and offer, is the first of this type to add access to dark pools' liquidity by an exchange, according to a statement from NYSE Euronext. As alternative systems attract volume away from the exchanges, the routing initiative is expected to help the NYSE be more competitive by giving its customers a better chance to execute orders at a better price. Broker-dealers and alternative systems are often referred to as dark pools because they do not display quotes.
Nasdaq OMX Group has also announced a similar program, but it is not live yet.
Securities class-action settlements in 2007 totaled $9.96 billion, down from $19.27 billion in 2006, although the 243 settlements set a record last year, up from 180 in 2006, according to RiskMetrics Group's Securities Class Action Services report.
Tyco International Ltd. represented the biggest settlement in 2007 at $3.2 billion, accounting for almost one-third of the total, the report said. Cardinal Health Inc. ranked second with its $600 million settlement.
Milberg Weiss led the list of the top-ranking plaintiff law firms for settlements in 2007, generating a total of $3.804 billion in 17 settlements, the report said. Grant & Eisenhofer ranked second, with $3.451 billion in five settlements, followed by Schiffrin Barroway Topaz & Kessler, $3.302 billion in 19 settlements; Coughlin Stoia Geller Rudman & Robbins, $1.853 billion in 49 settlements; and Bernstein Litowitz Berger & Grossmann, $1.338 billion in 10 settlements.
RiskMetrics gives full credit for the settlement to both lead and co-lead plaintiff counsels in the rankings. Milberg Weiss, Grant & Eisenhofer and Schiffrin Barroway all received credit for the Tyco settlement, the report said.
The firm hopes the rankings will help institutional investors maximize shareholder value by highlighting those firms bringing in the most settlement dollars and playing the most active role in U.S. class-action cases, the report said.
Standard & Poor's introduced currency indexes pegged to the Chinese renminbi and Indian rupee, designed to provide investors with exposure to emerging economic superpowers that currently lack a liquid currency futures market, according to an S&P news release. They are the company's first real-time currency pricing indexes. The S&P Chinese Renminbi index and the S&P Indian Rupee index will serve as benchmarks for currency performance, David Blitzer, managing director and chairman of the index committee at S&P, said in the release. China and India are both important markets in global trade, but currently lack a liquid and accessible currency futures market, he said. S&P plans to create other real-time currency indexes later this year, the statement said.
Retirement Systems of Alabama, Montgomery, paid about $750,000 to shareholders of The Liberty Corp. as part of an agreement approved by the SEC over insider trading charges against the $32 billion fund, said Tom Krebs, an attorney representing the fund. The SEC announced March 6 it investigated allegations that the fund had used inside information to profit from Raycom Media Inc.'s acquisition of Liberty in 2005, but the fund was not fined or sanctioned. The $750,000 payment was based on the difference between the stock price the fund paid and the stock's price 24 hours after the merger announcement, plus interest, Mr. Krebs said.
Nasdaq OMX Group received SEC approval to launch the Nasdaq Options Market on March 31, Nasdaq executives said March 12 at the Futures Industry Association conference in Boca Raton, Fla. Nasdaq designed the new options market's model, similar to electronic communications networks, to handle the surge in traffic related to the introduction of quoting U.S. options in pennies. The model the first such in the U.S. is based on best-price protection and is particularly suited for active traders and arbitrageurs but not for complex options strategies.
Separately, officials Eurex, the derivatives giant part-owned by Deutsche Boerse, told reporters at the FIA it is planning to allow its customers to trade U.S. options on its International Securities Exchange subsidiary and clear them in Frankfurt starting next year. The plan needs regulatory approval but is less ambitious than a prior Eurex attempt for trans-Atlantic clearing.
Guild Concepts Ltd., White Plains, N.Y., and its president, Victor Ayala, must pay $1.5 million into the company's pension plan in a settlement of a lawsuit that charged the company with violations of ERISA provisions, according to the U.S. Department of Labor. The lawsuit filed by the Labor Department alleged that the company's controller, Philip Liu, failed to put more than $200,000 in employee contributions into the plan and transferred $996,000 of plan assets into the company's general account. The suit alleges that Mr. Ayala did not monitor or prevent Mr. Liu's actions. Mr. Liu pleaded guilty to embezzlement and is serving a 57-month prison sentence. The asset size of the plan could not be immediately learned.
He's serving five years, and personally, I don't think that's enough time, Mr. Ayala said of Mr. Liu. It's been a tragedy for us.
Participants in 401(k) plans moved a net $219 million into fixed income from equities last month, according to the Hewitt 401(k) Index. About 80% of the net transfers flowed into GIC/stable value funds. Large U.S. equity funds saw the largest outflow in February, with $80 million on a net basis, far less than the $521 million net outflow in January. International funds, which attracted nearly $1.2 billion in all of 2007, saw $74 million in outflows in February, following outflows of $489 million in January.
A poll of college and university endowment officials by SEI's Nonprofit Management Research Panel showed 94% said their organizations had some or all assets in alternative investments. Fifty-three percent of endowments with $100 million had at least 21% of assets invested in alternatives as of February. Fifty-five percent of the endowments with up to $100 million in assets had less than 20% of their portfolios in alternatives. Of the 86 executives polled none of them SEI institutional clients 35% said they couldn't meet minimum manager requirements for certain strategies, with 50% from endowments with less than $50 million reporting this as a challenge. However, 26% from endowments with more than $300 million also said this was a challenge.
Also, 72% said their organization used an outside investment consultant to research and recommend managers, though manager decisions were ultimately made by the investment committee; 20% said the organization used a manager-of-managers approach, while 8% said the investment committee did not use an outside consultant.
Nearly half of the executives felt a 5% endowment spending requirement, which some federal lawmakers have been discussing, would hurt the endowment's mission as well as the institution's overall operations, the survey said. Of those polled, 60% said their organization spent more than the 4.4% of total assets, the national average among endowments. Only 13% said their institution planned to increase spending in the upcoming year.
Among 401(k) plans with automatic enrollment, those with a default saving rate higher than 3% have an 84% participation rate, while those defaulting at 3% or lower have a participation rate of 72%, according to a white paper by MassMutual Retirement Services. Plans with higher default rates are more likely to have a company match, accounting for the increased participation rate, according to the paper, Automation: Three Steps to a High Performance Plan.
The paper also offers criteria that 401(k) plan advisers and sponsors should consider when evaluating automatic plan features such as automatic enrollment, automatic deferral increase and automatic asset allocation. Suggested criteria include considering whether the plan will offer a company match and what kind of education will accompany the new features. MassMutual used data from 400 plan clients.
To see the entire paper, please go to www.pionline.com/whitepapers.