All Reports & Bulletins
Supreme Court Confirms Need for 2009 Profitability Benchmarks Print E-mail
Contract Committee
Written by C. Meyrick Payne and Sara Yerkey of Management Practice Inc. (MPI)   

     The most important function performed by mutual fund trustees is the annual review of investment management arrangements.  One of the more complex and potentially confusing factors in this review is the analysis of the investment manager’s profitability. The recent ruling in the Jones vs. Harris case has reinforced the contract renewal process that has been conducted for the past 25 years, and has emphasized that the assessment of the advisor’s profitability remains a necessary step.

     The procedure trustees follow to review profitability is critical. A thorough review process and adequate documentation will help demonstrate that trustees have fulfilled their responsibilities as “watchdogs” of the interests of the shareholders.  The courts have clearly rejected the Calvinistic notion that too much profit is in itself a cause for condemnation. There is no hard and fast rule for determining whether an adviser earns an unreasonable profit from a fund. One court found that, after considering all relevant factors, a fund’s pre-tax profit of 77% return on revenue was reasonable under the circumstances.

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CCO Pay Rebounds Slightly at Larger Firms; CCOs More Involved in Risk Management Print E-mail
CCO Responsibilities & Compensation
Written by Jay Keeshan and Meyrick Payne, Management Practice Inc. (MPI)   
     MPI recently completed its fifth annual Survey of Mutual Fund Chief Compliance Officer Compensation and Organizational Practices. This bulletin summarizes the findings and is based on the submissions of 65 fund CCOs, representing funds with $2.9 trillion in assets.  66% of the participants were full-time employees and serve as CCO to both the fund and the advisor.

     Apart from CCOs at the largest firms, CCO compensation on average appears to be holding relatively steady through the financial crisis, with few CCOs seeing wide variability in their annual pay.  The overall picture was on par with expectations that CCOs would not receive the larger increases seen before the meltdown.  The majority of participating mutual fund CCOs again saw moderate or no increases in total compensation in 2009 when compared to 2008. Based on the 65 participants in the 2010 study (not exactly the same group as in 2009), average total annual CCO compensation rose from $349,266 to $352,034, an increase of less than 1%.

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How Mutual Fund Boards Should Take CARE of their CCOs Print E-mail
CCO Responsibilities & Compensation
Written by C. Meyrick Payne and Sara D. Yerkey   

     The role of a mutual fund’s Chief Compliance Officer was partially devised to assist the board in the execution of their duties. Principle among them is to ensure that the Fund complies with the Securities Laws. In many ways the CCO is the eyes and ears of the fund directors. And in return, the fund board has an obligation to guide, monitor and support their CCO.

     The purpose of this article is to describe the ways in which the mutual fund directors can accomplish this. Like any good manual their responsibilities can be summarized with an acronym. For this subject matter it is, “CARE.”

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Three Eras of Selecting Peers for Contract Renewal - February 2010 Print E-mail
Contract Committee
Written by Sara Yerkey and Meyrick Payne   

For many years the principle methodology for selecting peers to assess investment performance and fees and expenses has been based on either investment objective or investment style. This MPI Bulletin argues that a supplemental selection process should include investment strategy. The principle logic behind this concept is that to a greater and greater extent the differentiator between alternate funds is based on how investment selection decisions are made rather than the result of those decisions.

 

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Performance Fees for Fund Directors: Perhaps It Is Time? - February 2010 Print E-mail
Board Compensation
Written by C. Meyrick Payne   

Every now and then fund directors have a serious discussion about the merits of performance fees for the fund's advisor. Perhaps the debate is incomplete and they should also discuss what it would mean if they decided to integrate a performance fee into their own compensation. Without taking a position on the relative advantages and disadvantages of this proposition, this bulletin explores this concept.

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