The chief executive at F-Squared Investments said he plans to leave after months of regulatory scrutiny over the exchange-traded-fund picker's high-flying performance record.
“I couldn't be prouder of the company we have become, but I believe it is in the best interests of our firm and our clients that I step down,” Howard Present, a former Putnam Investments managing director, said in a statement released Friday.
F-Squared said in an August regulatory filing that it had been notified by the Securities and Exchange Commission of its
preliminary intent to recommend civil action against the firm.
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Laura Dagan, a three-year veteran of the board, is taking over the $28 billion firm's top executive position.
F-Squared's
risk-management pitch won advisers over after a massive equity market rout in 2009, as did its use of exchange-traded funds and a sterling performance record.
But the firm now disavows some of the performance it reported on its own strategies, which it says were “clearly overstated.”
F-Squared's separate-account strategies include several of the top performers over three- and five-year periods, such as its Premium AlphaSector Index, the basis of its largest strategy by assets, with a five-year gain of 19.47% as of June 30, according to Morningstar Inc.. (Morningstar also builds ETF portfolios and is a competitor to F-Squared.)
That strategy is offered at 60 basis points, and sometimes less, while investors in discounted institutional share classes of large-cap core mutual funds paid nearly 69 basis points in 2013, according to research firm Lipper Inc.
F-Squared also manages a suite of five mutual funds for Virtus Investment Partners Inc.
The money manager increased its own assets by about 80% in the 12-month period ended June 30.
But some brokerages, including
Wells Fargo Advisors, have sent up warning flags to advisers about F-Squared since the SEC investigation began. Others, such as RBC Wealth Management and
Raymond James Financial Inc., have required advisers to rein in client exposures to F-Squared, according to three people with knowledge of those companies' efforts.
