Conference call: ICI wants SEC to go both ways, more or less

The head of the mutual fund industry’s largest trade group called on the Securities and Exchange Commission Thursday to require both more and less disclosure by fund companies.

Matthew Fink, president of the Investment Company Institute, praised regulators for recently proposing changes to fund-performance advertising rules that would require fund companies to use more up-to-date data in their ads.

“The same successful logic should next be applied to shareholder reports,” he said.

At the same time, Mr. Fink also repeated the ICI’s position that the SEC should abandon a rule that requires fund companies to disclose equity holdings. Fund companies must file a list of their holdings with the SEC on a quarterly basis.

EASILY AVAILABLE

That filing, called a 13F, is publicly available and may be accessed immediately through the SEC’s website.

“Once posted, Form 13Fs are instantly downloaded by professional traders, who use the information to identify securities the funds may be acquiring or selling,” he said. “The inescapable conclusion seems to be that 13F filings fuel abusive practices like front-running and free-riding that harm fund shareholders.”

Mr. Fink delivered his comments last week at the ICI’s annual General Membership Meeting in Washington. The three-day meeting, the industry’s most important gathering, came at a difficult time for the fund industry.

U.S. fund companies oversaw $3.4 trillion in stock fund assets at the end of 2001, down 13.6% from $4 trillion at the end of 2000. New cash going into mutual funds, meanwhile, plummeted to $32 billion from $309 billion during the same time period, according to the ICI’s most recent tally.

The drop in assets, a direct consequence of the market’s decline, has led to a tight squeeze on profits at many major fund companies. Fidelity Investments of Boston, Janus Capital Corp. of Denver and Putnam Investments of Boston all have announced layoffs to cope with the downturn.

Terry K. Glenn, ICI chairman, did his best to boost the morale of those at the conference by pointing to the overall resiliency of mutual fund investors.

The industry posted a record net inflow of $505 billion last year, up from $389 billion in 2000 and ahead of the previous record of $477 billion in 1998, said Mr. Glenn, who is Merrill Lynch Funds’ chairman for the Americas and president.

“Even as our nation’s economy appeared poised to plunge deeper into a recession, mutual fund shareholders had a measured response to the uncertainty that gripped the markets,” he said. “Despite the year, all fund categories, that is all fund categories – stock, hybrid, bond and money market – reported inflows.”

Too bad fund company executives don’t share that resiliency. At 1,423 people, attendance at last week’s conference was down nearly 18% from a year earlier.

“To tell you the truth, it’s better than we were expecting,” Mr. Fink said of the attendance numbers.

In his opening remarks, Mr. Fink also called on the SEC to keep a closer eye on hedge funds.

“In the past few years, we’ve witnessed an alarming increase in serious problems for investors in unregistered hedge funds, including bankruptcies, looting of assets, misleading accounting, deceitful communications and unscrupulous sales to less-sophisticated investors,” he said.

He also voiced the ICI’s support for pending legislation that would allow fund companies to offer “reasonable and prudent advice” to participants in 401(k) plans. Under current law, fund companies are not allowed to offer investment advice to those who sock money away in the companies’ retirement plans.

“Many 401(k) participants want advice to help them evaluate the investment options available to them,” he said.

Mr. Fink and Mr. Glenn, of course, weren’t the only bigwigs to speak at the conference.

IMPACT OF SETTLEMENT

Joseph J. Grano Jr., chairman and chief executive of UBS PaineWebber Inc. in New York told attendees his company was considering making changes to its practices in light of Merrill Lynch & Co.’s settlement last week with New York state’s attorney general.

Merrill agreed to pay $100 million and change the way it pays stock analysts, to settle allegations that it issued misleading research on stocks of the company’s investment banking clients.

Later in the week, Salomon Smith Barney Inc., the brokerage arm of Citigroup Inc., pledged to make its research more independent.

Mr. Grano didn’t specify what changes his company was considering.

“This is a defining moment for the industry,” he said. “I can assure you that the research analysts at Merrill didn’t wake up one morning and start taking stupid pills. We all got too confident and too exuberant.”

Related Topics: Investment Company Institute (ICI)