All Reports & Bulletins
More Work, Fewer Assets; Impact on Director and CCO Compensation - January 2009 Print E-mail
Board Compensation
Written by Jay Keeshan and Meyrick Payne, Management Practice, Inc.   

The last quarter of 2008 saw unprecedented upheaval in the financial markets.  New revelations of crises and scandals broke almost weekly; the most recent being the colossal Madoff investor fraud, which involved an investment offering that turned out to be a Ponzi scheme.  Standing relatively untarnished amidst all of this has been the mutual fund industry.  Apart from a few isolated incidents, the overwhelming majority of the industry has performed as intended, providing diversification, transparency, and liquidity to shareholders.  While performance and flows are down, and downsizing -- along with the rest of the industry and economy -- will likely take place, it is clear that the mutual fund industry will survive this crisis and, in our view, successfully emerge as a solid model of safe, effective, and well-governed money management.
 
In this environment, independent mutual fund directors and the regulations that empower them have played a significant role in the industry’s success.   Most directors have faced a substantially increased workload in the form of additional meetings and materials to review.  Many have been presented with new issues to understand and manage, including ARPS, CMOs, and CDSs, and the once relatively routine review of money market funds has topped many boards’ agendas.  Some directors may also feel increased legal exposure. 

Presented with the task of setting their own compensation, directors must resolve the dilemma of ensuring that they are fairly paid.  In addition, they are responsible for setting the pay of their Chief Compliance Officer, who faces similar new challenges. 

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The Search for New Fund Directors - November 2008 Print E-mail
Nominating Committee
Written by Jay Keeshan and C. Meyrick Payne   

 MPI’s last bulletin discussed the effectiveness of mutual funds and their governance model during the recent economic upheaval.  It stressed the importance of mutual fund boards as well as the prospect of their getting more attention as a new financial regulatory structure is laid out.  While much is still to be determined, it is likely that there will continue to be a need for highly qualified individuals to serve as independent directors to help oversee America’s mutual funds, exchange traded funds, and potentially even hedge funds.

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Mutual Funds and Their Directors in Turbulent Times - October 2008 Print E-mail
Full Board
Written by C. Meyrick Payne   

Turbulent times bring out the best and worst in every aspect of financial investing. Once again, mutual funds are proving to be an appropriate investment for individuals, families and small organizations. Mutual funds are safer and less volatile in turbulent times because of their professional management, diversification, transparency, and governance structure.

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The "Value Added" Contract Renewal Process - August 2008 Print E-mail
Contract Committee
Written by C. Meyrick Payne and Jay Keeshan   
Since the inception of the Investment Act of 1940, one of the critical duties of mutual fund directors has been the annual approval or renewal of the investment advisory contract.  As part of the process, directors must review crucial data for each fund they govern, which includes comparisons with peers on numerous issues including investment performance, fees, and profitability. In addition to the profitability of the advisory contract, directors must review and evaluate any potential “fall-out benefits” to the advisor that may result from other fees charged to the fund (i.e. transfer agency or administrative fees).  A more recent SEC ruling in June of 2004 now requires that directors disclose information on how and why they came to various decisions they make during contract renewal.
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Measuring the Cost and Effectiveness of Fund Directors - July 2008 Print E-mail
Board Compensation
Written by C. Meyrick Payne and Jay Keeshan   

C. Meyrick Payne and Jay Keeshan, Management Practice, Inc (MPI).  Data for this Bulletin is principally drawn from the  MPI Annual Survey of Trustee Compensation and Governance Practices.

Independent mutual fund directors, who have the authority to annually review and renew the investment advisory contract, have proven to be a cost efficient and effective way to govern the collective investments of millions of Americans. Occasionally this statement is called into question. In the paragraphs which follow, we highlight four ways to quantify the cost efficiency and market effectiveness of independent mutual fund directors.

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