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Trends in the Fees and expenses of Mutual Funds, 2010

We identified 39 funds for which direct support was provided and a no-action letter was not requested. We also noted numerous funds for which a no-action request was made but no support was subsequently disclosed. By reviewing the financial statements, we obtain additional information on the nature and amount of support on an ex post basis. Finally, as previously noted, our data set focuses only on direct support to U.S. prime MMMFs and includes the review of SEC filings for an extended time period covering support events occurring as late as fiscal years ended October 31, 2011, which...

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Characteristics of Mutual Fund Investors, 2011

For example, SLAT Prime Obligation Fund disclosed a variety of asset purchases occurring in the year ended June 30, 2009, but did not disclose transaction dates. Second, even if the date of the support was disclosed, in many cases that date represented when the sponsor chose to provide direct support, but the direct support may have been preceded by indirect support such as guarantees that were important in stabilizing the NAV, reassuring investors and preventing runs. Finally, for some funds, AUM data were not available daily or even monthly for the periods reviewed, and thus a perfect match could...

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Trends in the Expenses and Fees of Mutual Funds, 2011

Given all of these challenges, Figure 1 includes the highest AUM figure for each fund over the reporting year per both SEC annual and semiannual filings and voluntary filings by the fund with iMoneyNet, as applicable. Using the highest available AUM figures provides the most conservative view of the relative magnitude of each identified instance of direct support. For 28 instances covering 18 funds for which iMoneyNet data were not available, the AUM data on Figure 1 represent the highest of the beginning, semiannual, or ending AUM figures for the year when the support occurred, as disclosed in the...

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IMPACT OF FATCA ON FOREIGN FUNDS

Support was largely driven by holdings of defaulted structured investment vehicles and Lehman obligations in 2007 and 2008. Figure 3 presents a list of defaulted securities referenced in at least one financial statement of the supported funds. Figure 4 presents the driver of support disclosed for the 21 funds with instances over 0.5% of AUM, as disclosed in the fund financial statement or in a related no- action letter. In some cases in the broader population of instances, the reason for support is not always specified in the financial statements beyond generic terms such as due to realized losses of the...

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Financial Stability Oversight Council’s Proposed Recommendations Regarding Money Market Mutual Fund Reform (the “Proposal”), FSOC–2012–0003, 77 FR 69455, November 19, 2012.

Company Act of 1940. 14 If the current rules were in place in 2007 and 2008, prime MMMFs could still have held the distressed asset-backed commercial paper and Lehman debt securities that triggered support for many funds and the break the buck event for the Reserve Fund. Indeed, Lehman debt maintained the highest short term ratings up through the time it filed for bankruptcy. 15 And recent sponsor behavior indicates that support is still a likely event in the face of such credit events or uncertainty. Although no MMMF holdings have defaulted since 2008, two Northern Trust funds 16 disclosed the purchase...

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ATTRACTING PENSION PLAN ASSETS - WHAT ALTERNATIVE INVESTMENT MANAGERS NEED TO KNOW

Although the triggering market events occurred over the two years at the beginning of our review period, direct support continued in later years as well. In some of these instances, fund sponsors delayed direct support by putting in place multi-year guarantees. For example, the SDIT Prime Obligation Fund, which only shows support for the fiscal year ended January 31, 2010, disclosed that on November 8, 2007 it entered into a CSA with SEI Investment Company providing that SEI would cover any losses realized on sales of securities that caused the mark to market NAV of the fund to fall below...

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THOUGHTS FROM THE BOARDROOM PWC MUTUAL FUND DIRECTORS ROUNDTABLE 2012 HIGHLIGHTS

These simple measures of support do not take into account two very important factors. First, if support had not been provided to the funds, it is likely that increased investor redemptions would have resulted and reduced each fund’s AUM, thus magnifying the impact of the losses for remaining investors. 19 Second, the use of a 0.5% threshold is conservative because it assumes that there are no unsupported losses in each supported fund. For example, if a fund had a total combined realized and unrealized loss of 0.7%, support of only 0.3% would be enough to prevent the market value NAV...

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The Stability of Prime Money Market Mutual Funds: Sponsor Support from 2007 to 2011

The largest support instance noted relative to AUM was the $336.8 million, or 6.3% of AUM, support to the Russell Money Market Fund. This entire amount was due to the purchase of the Fund’s Lehman holdings, as noted in the following disclosure, “On September 14, 2009, the Lehman Securities were purchased by Frank Russell Company from the Fund at amortized cost of $402,764,934 plus accrued interest of $775,756.” While such a large exposure seems inconsistent with the 5% concentration limit of Rule 2a-7, it is important to note that such limits are only in effect at the time of purchase....

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Qatar Investment Fund plc 2011

This paper does not make assertions about the significance of the support to the sponsor, but rather our focus is on the impact of support to prime MMMFs and its potential to cause investors to perceive that prime MMMF portfolios are less risky than they actually are. It should be noted that a support amount as reported in this paper is not necessarily equivalent to a loss realized by the fund sponsor. Instead, in the case of a security purchase, it is indicative of the loss that would have been realized by the fund sponsor if it had disposed of...

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Trends in the European Investment Fund Industry in the First Quarter of 2011

It is interesting to consider why a sponsor chooses to support a MMMF even though it is not contractually required to do so. Fund sponsors may be concerned about their reputation in the market place, loss of cross-selling opportunities, or the cost of potential investor lawsuits. 21 We posit that fund sponsors may also choose to provide support because they initially underestimate the amount of support necessary to fully alleviate financial concerns in the funds. While the entirety of support is costly, the incremental cost at each point may appear worthwhile. ...

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Trends in the European Investment Fund Industry in the First Quarter of 2012

Regardless of the motivation, sponsor behavior observed through these support instances suggests that while the costs can be significant, the perceived benefits at the time of support were greater to most fund sponsors. Understanding both the significance to the sponsor and their motivations would be important in making judgments as to whether investors should reasonably expect this model to continue, as it is possible that the sponsor value proposition could shift, especially where necessary support amounts are large. ...

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Trends in the European Investment Fund Industry in the Second Quarter of 2011 and Results for the First Half of 2011

Investors in MMMFs choose these funds because of the stability and liquidity that they provide 22 . This is precisely why these investors are prone to run during a financial crisis when either or both of these product features may be compromised. If investor losses resulted from market events more frequently, it is possible that the investor base and level of interest in the funds today would be very different. But, as this paper shows, such outcomes are not frequent, as even in times when market events would have caused losses to many investors, the voluntary actions of sponsors has negated this...

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Trends in the European Investment Fund Industry in the Second Quarter of 2012 and Results for the First Half of 2012

It is unclear whether MMMFs, as currently structured, are really pass-through entities. Fund investors see no fluctuations in their share values based on changing interest rates or credit spreads. When fund losses materialize, it is usually the sponsors rather than investors who absorb them. And in the only recent example of investors being required to absorb a loss, a run was triggered on other funds that may have significantly impacted the broader economy absent government intervention. ...

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Trends in the European Investment Fund Industry in the Third Quarter of 2012

We agree with the Council’s proposed determination that the conduct, nature, size, scale, concentration, and interconnectedness of MMFs’ activities and practices could create or increase the risk of significant liquidity and credit problems spreading among bank holding companies, nonbank financial companies, and the financial markets of the United States. 3 For this reason, we support the Council’s efforts to address the structural vulnerabilities of MMFs by releasing the Proposal. ...

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Energy Efficiency in Buildings: Combining New Financial Instruments with the MFF

Capital market development in Brazil is a key policy issue going forward to foster savings, investment and absorptive capacity in a context of prospects for sizable capital flows in the medium term. During the last decade, Brazil has achieved substantial progress in capital market development. The menu of available financial instruments has been expanded, market infrastructure has been reformed and strengthened, and a diversified investor base has been built. Nonetheless, Brazil’s capital markets are still facing a number of challenges including prevalent short-term indexation, investors’ risk aversion to long-term fixed rate bonds, still low liquidity in the secondary market, and...

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INVESTMENT COMPANY INSTITUTE The U.S. Retirement Market

Financial development is important for fostering economic growth and stability. This is a feature of the development process that has been extensively documented in the literatures (see Levine). 1 One of key components in this process is capital market development. For example, deepening the long-term local bond market facilitates the reduction of currency and maturity mismatches on corporations’ balance sheets. This also creates alternatives to bank financing that can support efficiency and stability. From investors’ point of view, deep and liquid capital markets increase the supply of differentiated assets facilitating investment choices. Perhaps most importantly for emerging markets (EMs), the macroeconomic...

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TRUSTEE REPORT ON THE FINANCIAL STATUS OF THE STRATEGIC CLIMATE FUND

Capital market development in Brazil is a key policy issue going forward to foster savings, investment and absorptive capacity in a context of prospects for sizable capital flows in the medium term. Brazil’s savings and investment levels as a share of GDP are still low by international standards. As such, deepening capital markets would be important for increasing incentives for savings and allocating these efficiently to investments. Deep and liquid capital markets could also help bolster resilience to capital flows by developing greater absorptive capacity. This paper reviews the state of play in Brazil and steps for further development....

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Investor Alert: Self-Directed IRAs and the Risk of Fraud

Brazil’s capital market remains focused on short term instruments. Most financial contracts among residents are indexed to the overnight interest rate, although there has been a gradual trend towards increasing duration in the recent years. This largely short term structure reflects long-standing fundamental factors, including a legacy of past high inflation that typically is associated with a more short–term focus for investing. Moreover, the flatness of the yield-curve––a reflection of the high level of short-term interest rates and degree of indexation of debt holders––contribute to a low secondary market turnover ratio, constraining overall market development....

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Mutual Funds, Asset Management Companies (AMCs), Trustee Companies and Boards of Trustees of Mutual Funds.

Brazil’s equity market has grown rapidly in terms of both market capitalization and transaction volumes. Total equity market capitalization was about 55 percent of GDP in 2011 with a diversified investor base including individuals, institutional investors, financial institutions, and foreign investors. This growth has been fueled by a combination of strong market performance and a steady increase in the total quantity of shares. The introduction of the Novo Mercado (“New Market”), which encouraged corporations to adopt higher standards for corporate governance, transparency, and minority shareholder protection, as pre-requisites for listing, has also contributed to further market development. ...

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Securities Lending Best Practices: A Guidance Paper for US Mutual Funds

Foreign investors are significant players in the equity market. Indeed, foreigners are majority investors, especially, in public offering market. Most non-resident investors are domiciled in the U.S. and Europe, introducing an important link between the offering market and conditions overseas (see Figure 5). In August and September 2011, for example, there was no share issuance––several public offerings were canceled or postponed due to investors’ concerns on contagion risks from the euro zone. Cross-country analysis also shows that foreigners’ share in market capitalization has been higher than in other large emerging economies. ...

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Selected Investment Funds (SIF) Fund Insert

Local institutional investors in Brazil—pension funds and mutual funds—have been less active in the equity market. For instance, mutual funds’ asset allocation has been concentrated in safe and liquid assets such as government bonds and repo transactions. Pension funds, whose return target is typically set to achieve a certain spread over the rate of inflation in the context of a high short-term interest rate environment, tend to invest in inflation-linked bonds rather than equities. As such, lower interest rates and rising valuations in the equities, if supported by fundamental improvements in corporate prospects, could attract a greater number of companies...

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How Does Size Affect Mutual Fund Behavior?

There has been substantial progress in the development of the government bond market. Key steps include a lengthening of the yield curve, reduction in external exposure and diversification of the investor base. This has been supported by improved macroeconomic conditions, foreign investors entering the fixed rate segment of local currency government debt, and well designed microstructure reforms regarding issuance policy and auction process. As shown below, the government bond market has become more resilient to various risk factors. ...

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The Promise of Impact Investing

Investor base: participation by different investors in the government bond market has grown more diversified. Of the various actors in this market, banks tend to invest in relatively shorter term bonds to match their short-term liability. Pension funds and insurance companies prefer hedging long-term inflation risks by investing more in inflation linked bonds. Non-residents concentrate their direct exposure to fixed rate instruments, but with maturity less than 3 years. Mutual funds, which tend to be more sensitive to high frequency changes in financial market conditions, have demonstrated a greater preference for floating ....

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Assessing the quality of investment advice in the retail banking sector

The private bond market remains much smaller than that for the government. The outstanding issuance of corporate bonds has risen to almost 10 percent of GDP in 2011, but the market is still very concentrated in short duration rates, with a limited investor base and less diversified issuers. This suggests that the private fixed income market is not a significant long-term financing source for non-financial corporations. Indexation: Around 90 percent of private bonds are linked to the DI rate, resulting in little incentive for active trading. The share of fixed rate bonds still remains very low at about 1 percent...

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THE STATE OF MICROFINANCE INVESTMENT 2011: MicroRate’s 6th Annual Survey & Analysis of MIVs

Investor base: about 70 percent of private bonds were purchased by banks in 2011. Their participation has increased further recently partly because they have faced constraints in expanding consumer loans given increased risk and higher cost in the sector, and therefore have sought alternative higher-yield investment instruments. Liquidity in the secondary market is very limited as many banks tend to hold private bonds until maturity. Retail investors’ participation remains low (see Figure 11). ...

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EUROPE 50 Europe’s largest single managers ranked by AUM

Securitized instruments are rapidly growing, albeit from a very low base. The most active instrument is the FIDC (Asset Backed Securities), used to securitize a variety of assets including trade receivables and loans, as well as expected revenues in infrastructure projects. CRIs (Mortgage Backed Securities) are used to securitize mainly loans related to sale of real estate. This product has been one of the fastest growing instruments in Brazil. This is partly due to the product’s relatively low starting point, as well as the high marginal funding needs of the real estate sector––a sector that has been growing strongly, partially...

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Thrift Savings Plan Fund InFormatIon 2012

The small size of the private bond market also constrains its role. One of important benefits of a developed private bond market is that it can act as an alternative funding source when corporations’ access to overseas markets is limited or in the face of a domestic bank credit crunch. The disruption in the global money and credit markets in 2008 led to a liquidity squeeze for Brazilian corporations and financial firms. However, issuance of private bonds decreased during the crisis period (see Figure 12), reflecting in part the difficulties in efficient pricing and relatively short track records for borrowers....

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Undertakings for Collective Investment in Transferable Securities (UCITS)

BNDES has traditionally had an important role in the Brazilian financial system, but its size has doubled in the post-Lehman period. BNDES has typically been a major source of long- term financing for industry and infrastructure. During the crisis, it played an important counter-cyclical role as private bank credit fell off sharply in 2009 during the height of the Lehman related global tensions. However, it has been accompanied by a doubling of the size of BNDES’ balance sheet from 7½ percent of GDP in 2007 to over 15 percent of GDP in 2011 (almost 10 percent financial system lending)....

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UCITS Hedge Platform Survey 2012: Building routes to a new investment market place

Overcoming the current challenges and fostering further capital market development will require efforts across a broad policy front. Significant efforts to realize this crucial agenda are underway and could be deepened further. A sine qua non is to continue to further entrench the important and hard-won gains on macro stability that Brazil has achieved in the last years, including on the fiscal responsibility and inflation targeting frameworks. This continued predictability will further anchor the economy and facilitate a shift from shorter to longer term horizons for investment planning and the structure of finance. Raising savings rates should also contribute to...

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Sustainable and Responsible Investing Trends in the United States 2012

The authorities have made continuous efforts to build benchmarks at different points along the yield curve. The aim of this strategy is to further develop the interest rate term structure in the local currency, which would allow better pricing and liquidity of bonds issued both by the government itself and by the private sector. To this end, the authorities have increased the average maturity of the outstanding debt and smoothed its maturity profile. Moreover, in March 2012, the National Treasury carried out the first auction of fixed rate bonds due in January 2023, which will be the new 10-year benchmark...

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