Reuters: Money: Public pension finances rebound slightly: Census

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Public pension finances rebound slightly: Census Mar 30th 2012, 20:54 A picture illustration shows a 100 Dollar banknote laying on one Dollar banknotes, taken in Warsaw, January 13, 2011. Credit: Reuters/Kacper Pempel By Lisa Lambert WASHINGTON | Fri Mar 30, 2012 4:54pm EDT WASHINGTON (Reuters) - The finances of public pensions rebounded in the final quarter of 2011 from the quarter before, but the cash and security holdings were still below end-of-2010 levels, according to U.S. Census data released on Thursday. Gains in stocks and international securities lifted holdings 3.2 percent from the third quarter to $2.61 trillion, slightly less than the $2.64 trillion in the fourth quarter of 2010. "The public pension funds, in the main, last year went about sideways, said Keith Brainard, research director for the National Association of State Retirement Administrators, adding that the median investment return was around 1 or 2 percent. "And the fourth quarter was strong after that very difficult third quarter that included the market losses." The 100 largest state and local government employee retirement systems earned $97.1 billion on their investments in the fourth quarter, compared to the $198.8 billion loss they suffered in the third quarter, which was the first loss in more than a year and the largest in more than five years. "In the middle of the year we're seeing three things," said Hank Kim, executive director of the National Conference on Public Employee Retirement Systems. "First, the ripple effects in the supply chain from the tsunami and nuclear disaster, I think, impacted some of the economic growth and the market. Second, you had the whole silliness with the raising of the debt ceiling. And in Europe you had the crisis." Last summer the U.S. Congress and President Barack Obama agreed to a plan to start cutting $1.2 trillion in spending in 2013 after a long stand-off over the country's $1.3 trillion deficit and $15 trillion debt. "The first quarter of 2012 should be good," Kim said. "If you look at the broader markets, I think they came to life since January 1. Hopefully when the market closes on Friday, we can capture that." Meanwhile, employees pitched $9.2 billion into the retirement systems over the quarter, slightly down from the $9.5 billion they contributed during the same period a year ago. Government contributions, essentially the taxpayer tab, also dipped, to $21.5 billion from $22.4 billion the year before. Still, total contributions grew throughout 2010 and 2011, and the total $33.4 billion that governments and employees put in during the second quarter of 2011 was the highest in more than five years. Typically, when investment returns are low, governments increase contributions. But during some of the worst budget crises in recent memory, state and local governments cut back just as the stock market plunged. With recent retirement breakdowns in Rhode Island and the threats of further fiscal stress in other places, states are worried about how to fund future retiree benefits without cutting spending on other vital programs. Most states are in the thick of budget negotiations for the upcoming fiscal year, and many are bound by their constitutions to pay retiree pension benefits. Almost everyone agrees pension funds can pay for current retirees but are short on future obligations. Estimates of the shortfall range from just under $700 billion to $3 trillion, based on how investment returns are forecast. The systems prefer using historical averages, while critics say they cannot bank on achieving the return highs they experienced before the crisis. California's pension fund for public employees made international headlines earlier this month when it lowered its assumed rate of return to 7.5 percent from 7.75 percent. The financial crisis caused the earnings on public pensions investments, the funds' largest sources of revenue, to plummet for three quarters in a row from the end of 2008 to the beginning of 2009. The value of their holdings scraped the bottom at $2.09 trillion in the first quarter of 2009. Since then, they have slowly inched closer to the $2.93 trillion they reached in the final quarter of 2007, before the recession devastated their balance sheets. "Public pension funds keep a long-term perspective, and it has been a strong few years since the bottom of the market in 2009," Brainard said. (This version of the story was corrected to fix the 2007 total to $2.93 trillion from $2.92 trillion in penultimate paragraph) (Editing by Andrea Evans) Link this Share this Digg this Email Reprints

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Reuters: Money: Schwab considers warnings on controversial exchange-traded products

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Schwab considers warnings on controversial exchange-traded products Mar 30th 2012, 21:42 Liz Ann Sonders, senior vice-president and Chief Investment Strategist for Charles Schwab & Co., speaks during the Reuters Global Investment Outlook Summit in New York, June 8, 2011. Credit: Reuters/Brendan McDermid By Angela Moon and Jessica Toonkel NEW YORK | Fri Mar 30, 2012 5:42pm EDT NEW YORK (Reuters) - Discount brokerage Charles Schwab Corp is reviewing whether to add a warning when a customer is about to trade certain exchange-traded products, in one of the strongest warnings yet for retail investors about these esoteric securities. The move follows the sudden plunge in an exchange-traded note called VelocityShares Daily 2X VIX Short-Term ETN, or TVIX, which lost 60 percent of its value last week. "It is under review, primarily because of the risk we saw in things like the TVIX. No one knew that those kind of things were going to happen," said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research in Austin, Texas. The warning would be similar to one that pops up when investors trade options related to volatility, which are more complex than stocks. The note, which pops up at the final verification stage of a trade, will serve as "a last warning to say, 'Hey, make sure you know what you are doing. If not, call us and we will explain to you,'" Frederick said. Schwab's review and consideration of a warning for investors is significant because it comes at a moment after federal and state regulators have zeroed in on volatile trading and other activity involving exchange-traded notes. REGULATORS CIRCLING ETNs The Financial Industry Regulatory Authority, the U.S. regulator that oversees the sale of investment products to investors, is investigating how companies are marketing exchange-traded notes. A FINRA spokeswoman told Reuters on Thursday that the regulator is "looking at the events and trading" activity surrounding a sharp drop in the price of the TVIX, an exchange-traded note designed to track stock market volatility. Massachusetts' top securities regulator is also looking into problems with the TVIX, a spokesman for Secretary of the Commonwealth William Galvin said. The U.S. Securities and Exchange Commission is conducting a preliminary review into the volatile trading of the ETN, The Wall Street Journal reported on Thursday, citing people familiar with the matter. Credit Suisse, the issuer of TVIX, stopped creating new shares a month ago as investors scrambled into this and other volatility-linked securities to bet on an increase in more market gyrations down the road. The price of TVIX dropped about 60 percent in just two days last week on news that Credit Suisse would start issuing shares again, bringing it back in line with its expected value. A Credit Suisse spokeswoman said on Thursday the firm "is cooperating with regulatory authorities." MAKING RISKS CLEAR Another major online brokerage Fidelity Investment has had a system for warning investors about the risks of trading ETNs since 2009. An investor who wants to trade an ETN has to sign an investor agreement, and every time an investor makes a trade, a screen pops up warning them of the risks of ETNs. Fidelity also does not make leveraged and inverse ETNs and ETFs easily accessible when investors use its "ETF Screener." A spokesperson for discount broker TD Ameritrade said they have not decided to add a warning on trading these products. A representative from E*Trade Financial, another discount broker, did not respond to a request for comment. Exchange-traded notes have been attracting higher investment inflows alongside their exchange-traded-fund cousins. But experts caution that investors need to educate themselves before trading these exchange-traded products, or ETPs. ETNs have brought in $2.4 billion in net inflows so far this year, a 71 percent increase from 2011, according to Morningstar. "Even as a full-time trader, this is a product that is very hard to understand. You type in TVIX and all you get is that the profit is two to three times the volatility index, so people are thinking 'Oh yeah, this is great.' The problem is, these ETNs are designed to fail. They are broken products," said Jamie Lissette, an independent trader, and also the founder of the Hammerstone Group, a Westport, Connecticut-based operator of online discussion forums for investors. "Unfortunately, I traded TVIX during the plunge last week, and lost a couple thousand in a short time frame," Lissette said. Angry investors, some who have lost in the "six-digit figures" trading TVIX are gearing up for a lawsuit against Credit Suisse. They claim Credit Suisse misled investors by not providing sufficient information about the product. Some are also questioning the timing of the announcement on re-issuing shares, which came just a couple hours after a 30 percent plunge in TVIX on March 22, as investors had started to bet the shares would fall. The product's price fell another 30 percent the following day. Moulton & Arney, LLP, a boutique law firm based in Houston, is one of a handful of firms gathering investors who have lost money in the product. It is investigating the circumstances surrounding the decline in TVIX, and has received almost 200 calls from investors. The law firm said on its website that it "has been retained by a client who suffered a six-figure loss in TVIX on March 22 to investigate and pursue potential claims against Credit Suisse to recover his loss." Some large full-service brokerage firms already restrict their brokers from selling exchange-traded notes. For example, Bank of America Merrill Lynch only allows its more than 17,300 brokers to sell ETNs to clients with at least $10 million in assets - and only if they specifically ask for them. Raymond James Financial has prohibited its 5,400 brokers from selling 53 ETNs since October 2010, including the volatility ETNs and three-times leveraged ETNs. Clients who want to invest in available ETNs have to sign an affidavit that states they understand the risks inherent in these products. (Reporting By Angela Moon and Jessica Toonkle; Editing by Jan Paschal) Link this Share this Digg this Email Reprints

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Reuters: Money: Analysis: Worried about stocks rally? Enjoy the peace and quiet

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Analysis: Worried about stocks rally? Enjoy the peace and quiet Mar 30th 2012, 20:04 A trader works on the floor of the New York Stock Exchange, March 26, 2012. Credit: Reuters/Brendan McDermid By Ryan Vlastelica NEW YORK | Fri Mar 30, 2012 4:04pm EDT NEW YORK (Reuters) - What if there was a rally, and nobody came? The S&P 500 is set to close out its best first quarter in 14 years. The market is up about 30 percent since a low reached in October, but trading volumes are down more than 10 percent from last year, and measures of anxiety suggest little worry about the sharp advance. The low participation in the rally and the subdued nature has convinced some that the market isn't just quiet, but too quiet. And therefore, a sizable pullback is in the offing. But so far the S&P has only posted two down weeks in 2012, with the worst fall last week's mild decline of 0.5 percent. Many investors are downplaying traditional omens of approaching declines and instead are accentuating the market's positives, which they say will keep bullish momentum in place. "For a regular investor, low volume and volatility shouldn't be a factor," said Donald Selkin, chief market strategist at National Securities in New York, where he helps oversee about $3 billion in assets. "Volume isn't a concern since if you own a stock, what difference does it make if goes up on high volume or low?" For March, average daily volume on the New York Stock Exchange, the American Stock Exchange and Nasdaq has been about 16 percent below last year's average, on track for three straight months with a year-over-year dip of 10 percent or more. While volume has been especially low so far this year, trading has in general been down since the financial crisis, the lead-up to which was marked by some of the most active days ever. Recoveries have historically been marked by light action, another sign that investors need not fear. "Volume was very low in 2003, when we came out of that bear market, but it then ticked higher as we moved towards the top in 2007, with people throwing in the towel and doing anything to get into the market," said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati. "Of course they came in at the wrong time." In fact, 2012's average daily volume of about 6.8 billion shares for the combined NYSE, Nasdaq and Amex fits neatly in the trajectory of increasing volume for the 2000 to 2007 period - with the sharp increase in 2008-2010 crisis years as the anomaly. Daily volume peaked at 9.7 billion on average in 2009, before declining in 2009 and 2010. Futures contracts suggest investors are hedging against rising concerns, and possibly higher volume, in coming months. New tensions in the Middle East have called the stability of oil prices into question. World economies such as China are slowing, the U.S. election promises uncertainty, and earnings may be hit by higher fuel costs and reduced profit margins. Still, there are fewer triggers for an outbreak in worry now when compared with 2008. Accommodative monetary policy from central banks around the world will persist, and for now, domestic economic data are improving. Investors traditionally like to see volume rise as the market advances because it suggests more buyers - be they institutions or retail investors - are getting into the market. But Steven Wolf, managing director of investments at the Westport, Connecticut-based Source Capital Group, said the low overall volume isn't the primary concern. What would be more worrisome, he said, is expanding volume as markets decline. That's a sign of institutional selling known as a "distribution day," and it means large funds aren't confident enough in gains to hold them. "In the past three weeks, we've seen maybe three or four distribution days, which isn't a terrible count," Wolf said. "We've seen about 10 accumulation days over the same period, suggesting we're not seeing a lot of signs of institutional selling." LACK OF FEAR IS NOT A REASON FOR FEAR The CBOE Volatility Index has recently neared lows not seen since 2007. When the VIX, considered a gauge of investor anxiety, approached these levels last year, it came right before a sell-off that turned into a bear market. The difference is the rise in the VIX last year was due to news developments. Dramatic negotiations over the U.S. debt ceiling, the Arab Spring revolts and an earthquake in Japan created headwinds that are unlikely to be repeated. "While the VIX could pop up the low level isn't too much of a cause for concern," said Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio, which oversees $14.5 billion. Waiting for a level of activity similar to previous years may be overthinking the rally. Bespoke Investment Group, a financial research firm, on March 13 published a report saying investors should "avoid low volume (rallies) at your own risk." The firm noted that the S&P 500 had more than doubled in the three years since its post-crisis low in March 2009, with most of the gains coming as volume fell. "Without these days, the S&P 500 would currently be trading at a level of 128, which would be a decline of 81 percent." "Say what you want about a rally on low volume," they wrote, "but gains are gains no matter how they happen." Link this Share this Digg this Email Reprints

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Reuters: Money: Lawsuits test UBS advice on offshore bank accounts

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Lawsuits test UBS advice on offshore bank accounts Mar 30th 2012, 19:44 Dark clouds are seen over Swiss bank UBS logo on the company's buiding at Paradeplatz in Zurich, March 3, 2012. Credit: Reuters/Christian Hartmann By Lynnley Browning Fri Mar 30, 2012 3:44pm EDT (Reuters) - The case of a wealthy U.S. businessman who pleaded guilty to evading taxes but then sued the Swiss bank where he hid his money is scheduled to go to trial on May 8, the first major test of civil legal challenges to Swiss banks that sold offshore private banking services to help Americans evade taxes. The civil suit, filed against UBS AG in federal court in Santa Ana, California - and another filed against UBS in federal court in Chicago - will probe whether clients can legally rely on their private bankers' assertions there is no need to disclose the accounts on their tax returns or sign required disclosures. Tax lawyers describe the suits, emerging from a crackdown by federal authorities on Swiss banks, as the first of their kind in the United States to assert that Swiss bankers made improper assertions to their U.S. clients about the tax implications of their offshore accounts. In the California case filed in 2008, Russia-born American billionaire Igor Olenicoff accuses UBS of fraud in handling some $200 million he kept in offshore accounts and wrongfully advising him he did not have to report them to the tax-collecting IRS. Olenicoff pleaded guilty to tax evasion in 2007 and to lying on his tax returns by failing to disclose his offshore accounts, and paid $52 million in back taxes. His suit seeks $500 million in damages. The Chicago case, which seeks class-action status, was filed in June 2011 on behalf of former UBS clients Matthew Thomas of California and Himanshu Patel of Arizona. Thomas and Patel previously paid back taxes, interest and penalties to the IRS related to their Swiss accounts. They accuse UBS of fraud and breach of fiduciary duty for allegedly telling them that their accounts, opened when the two worked overseas during the last two decades, did not have to be disclosed to the IRS. UBS argues in both cases that its clients have a duty to know what to declare on their U.S. tax returns. A UBS spokeswoman in New York, Karina Byrne, declined to comment specifically on the lawsuits, but said the bank "does not give any tax advice to our clients, and we encourage clients to seek third-party tax advice." U.S. INVESTIGATION UNDER WAY The two cases are unfolding at a time when U.S. authorities are conducting a major investigation into the Swiss banking industry. The U.S. Justice Department has indicted one Swiss private bank, Wegelin, and charged scores of Swiss bankers and their American clients with tax evasion. In 2009, UBS averted indictment and paid a $780 million fine to the U.S. Justice Department as part of a deferred-prosecution agreement in which it admitted to fraud and conspiracy in helping about 19,000 wealthy Americans hide up to $20 billion in secret bank accounts. Olenicoff's name had been provided to the U.S. Justice Department earlier. The other two plaintiffs came forward to the IRS through voluntary disclosure programs, created in the wake of the UBS probe, that drew in 33,000 U.S. taxpayers with unreported accounts in Switzerland and elsewhere. It is legal for U.S. residents to hold offshore bank accounts, but the IRS requires taxpayers to disclose the accounts on their tax returns as well as to sign special disclosures provided by the banks, known as W9 forms. Under a U.S. Treasury program known as qualified intermediary, banks are required to collect the W9 forms and withhold taxes - typically 28 percent to 31 percent - on proceeds from U.S. securities held in client accounts and to send that money to the IRS. If clients refuse to sign the disclosures, the banks must sell any U.S. securities held in the offshore accounts, a process that triggers a tax bill for the client and a requirement that the bank report the sale and the client's identity to the IRS. UBS admitted as part of its agreement in 2009 that it did not collect or require clients to sign the forms, while concealing their identities from the IRS under Swiss bank secrecy laws. Olenicoff, a property developer whose wealth was estimated by Forbes in March 2012 at $2.6 billion, argues in part that UBS told him he did not have to sign the disclosures and that the investment accounts he was in complied with U.S. tax laws. FIDUCIARY DUTY In March 2010, the judge in Olenicoff's case rejected UBS's motion to dismiss the case, noting that "while banks typically do not owe fiduciary duty to their depositors, there are some situations where a fiduciary duty is owed." Thomas and Patel allege that UBS never told them they had to sign W9s and failed to withhold required taxes on U.S. securities in their accounts. David Deary, a Dallas-based lawyer for Thomas and Patel, said the potential number of plaintiffs in his case, which would cover American customers of UBS from 2002-2008 who entered voluntary disclosure programs with the IRS, could reach 25,000. "Our clients simply followed UBS's advice that they did not have to declare and pay taxes on the investment income," he said. Some tax experts, including Jay Soled, an accounting professor specializing in tax at Rutgers University, say potential plaintiffs might not come forward for fear of airing dirty laundry about their own taxes. The cases against UBS may differ in one key way from the fraud and breach of fiduciary duty claims filed in recent years against some accounting, auditing and law firms by wealthy Americans who had bought tax shelters. Plaintiffs in those civil cases, which resulted in hefty settlements, were bolstered by legal opinions from the law firms blessing their invalid shelters - something the UBS clients lack, tax lawyers said. Larry Campagna, a tax lawyer at Chamberlain Hrdlicka in Houston, said most juries would be unsympathetic to a wealthy U.S. resident who relied on a foreign banker for tax advice. But Jonathan Strouse, a tax lawyer at Holland & Knight in Chicago, said that even if Swiss bank clients had a duty to know they should have reported the secret accounts on their tax returns, they could still have "false representation" cases against banks which gave them improper information. "A lot of the clients had huge tax bills, and they're going to be looking to get back anything they can from the banks," Strouse said. (Reporting by Lynnley Browning in Fairfield, Conn. Editing by Amy Stevens, Howard Goller and Richard Chang) Link this Share this Digg this Email Reprints

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Reuters: Money: MasterCard, Visa warn of possible security breach

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MasterCard, Visa warn of possible security breach Mar 30th 2012, 18:01 A MasterCard logo is seen on a door outside a restaurant in New York in this February 3, 2010 file photo. MasterCard Inc is investigating a potential security breach related to a third-party vendor and has alerted banks and law enforcement officials, the company said on March 30, 2012. The credit-card processor said the issue involves a company based in the U.S. and is also being reviewed by an independent data-security organization. Credit: Reuters/Shannon Stapleton/Files By Lauren Tara LaCapra Fri Mar 30, 2012 2:01pm EDT (Reuters) - MasterCard Inc and Visa Inc have notified U.S. banks of a potential security breach, the latest in a string of incidents that have put the personal information of millions of credit card holders at risk. The companies, which are the two largest global credit card processors, said the issue stemmed from a third-party vendor and not their own internal systems. Discover Financial Services said it is also monitoring accounts for suspicious activity and will reissue cards "as appropriate." Following news of the breach, shares of Atlanta-based Global Payments Inc, which acts as a credit-checking middleman between merchants and card processors, were halted after dropping more than 9.1 percent. A representative did not immediately return a request for comment. MasterCard said it notified law enforcement officials and has hired an independent data-security organization to review the possible breach. A U.S. Secret Service spokesman said the agency was investigating, but declined to give any specifics about the breach. "MasterCard is concerned whenever there is any possibility that cardholders could be inconvenienced and we continue to both monitor this event and take steps to safeguard account information," the company said in a statement. "If cardholders have any concerns about their individual accounts, they should contact their issuing financial institution." Visa said it provided banks with affected customers' account numbers and emphasized that customers are not responsible for fraudulent purchases. The companies' statements came after the blog Krebs on Security reported that MasterCard and Visa have been alerting banks across the U.S. about a "massive" breach that may affect more than 10 million cardholders. The report said accounts were compromised between January 21, 2012 and February 25, 2012. JPMorgan Chase & Co said has been notified of the breach and is monitoring affected customers' accounts. Representatives of other big debit- and credit-card issuers, including Bank of America Corp and Citigroup Inc, as well as card processor American Express Co, either declined to comment on the matter or did not immediately respond to inquiries. Thousands of U.S. banks that issue credit and debit cards receive daily alerts regarding breaches through a system referred to as CAMS, said Thomas McCrohan, an analyst with Janney Capital Markets. PROCESSING PIPELINE Once a person swipes a card to pay, the transaction is sent through a chain of processing. The account number, expiration date and possibly the card holder's name is sent from the point of payment to a processor which then connects to Visa or MasterCard. Information is then sent to the card issuer â€" a bank â€" which ultimately authorizes the transaction. The actual transfer of money occurs later. The information that was likely collected illegally is called Track 1 and Track 2 data. A person improperly using the information can transfer the account number and expiration date to a magnetic stripe on a card and then try and use the card on a web site such as eBay Inc. Those transactions are aggregated and sent to a server, said Avivah Litan, security analyst at Gartner Research, but "it has a lot of hops along the way" before the card information reaches a processor. The illegal use of the data could be stymied if an online merchant asks for the three or four digits printed on a card known as the "CVV code." Processing companies, which perform millions of authorizations each day, are also supposed to encrypt card information. But a breach could occur if someone gains access to the system and identifies a gap in the encryption. "The systems can all be made tighter, but if they're too tight no transactions would ever be approved," said Edward Lawrence, a director at Auriemma Consulting Group, a payment systems consultant. "You still have to allow commerce to occur." The Visa-Mastercard breach is the first major instance this year of consumer information put at risk by technological flaws or hacking, but there are plenty of examples of massive data breaches in recent years, affecting banks, retailers, technology companies and payment processors. Last June, Citigroup said computer hackers breached the bank's network and accessed data of about 200,000 card holders in North America. Sony also reported several recent attacks, including one last year in which hackers accessed the personal information on 77 million PlayStation Network and Qriocity accounts. Google Inc suffered a major attack on its Gmail accounts in 2011 that it said appeared to originate in China, and companies including TJX Companies Inc and Heartland Payment Systems Inc have also had their systems compromised. "The fact that there has been another breach at a credit card processor shouldn't come as a great surprise," said Geoff Webb of data-protection company Credant Technologies. "Credit card thieves are constantly looking for opportunities to identify and attack sites where there is a weakness in security." (Reporting by Lauren Tara LaCapra, Carrick Mollenkamp and Jed Horowitz in New York, Joseph Menn in San Francisco, Ben Berkowitz in Boston, and Rick Rothacker in Charlotte, North Carolina; writing by Lauren Tara LaCapra; editing by Gerald E. McCormick and Andre Grenon) Link this Share this Digg this Email Reprints

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Reuters: Money: Dalio tops hedge fund rich list, Paulson exits

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Dalio tops hedge fund rich list, Paulson exits Mar 30th 2012, 16:27 1 of 2. Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange, June 27, 2007. Credit: Reuters/Chip East By Katya Wachtel NEW YORK | Fri Mar 30, 2012 12:27pm EDT NEW YORK (Reuters) - Three prominent hedge fund managers each made more than $2 billion in 2011, a year when most traders failed to earn money for their wealthy customers, according to an annual survey by AR magazine. Collectively, however, this exclusive group of the 25 richest hedge fund managers took a 35 percent pay cut last year, when hedge funds on average lost 5 percent. AR's "rich list" of top hedge fund earners showed the group raked in $14.4 billion, down from $22 billion the year before. To see the AR story, click on: r.reuters.com/nan47s Raymond Dalio clocked in at the top spot, earning nearly $4 billion as his Bridgewater Associates was one of the top-performing funds, with returns of about 20 percent. Carl Icahn, who runs Icahn Capital, and James Simons, who retired from Renaissance Technologies Corp, also had multibillion-dollar earnings, rounding out the top three. Noticeably absent from the AR ladder was 2010's top earner, John Paulson, who fell off the list entirely after a miserable year in which one of his biggest portfolios lost more than half its value, and his flagship Advantage Fund lost 36 percent. Paulson reportedly earned $4.9 billion in 2010. But Paulson was not the only manager who experienced a change in fortune. Volatile markets last year hobbled many of the previous year's top earners. Fifteen managers who were part of the AR rich list in 2010 didn't make the cut in 2011. Activist investor Icahn earned $2.5 billion during a year that his firm made about 35 percent, and mathematics professor turned hedge fund founder Simons made $2.1 billion. Citadel's Kenneth Griffin and SAC Capital Advisors' Steve Cohen, long-time top earners, rounded out the top five, taking home $700 million and $585 million, respectively. Dalio, Simons and Cohen cruised into top positions for the second year in a row, though in 2010 each of their paydays was bigger, according to AR's calculations. Hedge funds managers typically charge investors 2 percent for managing their money, meaning that the industry's largest funds often present their managers with the biggest checks. In good years, managers can also skim off 20 percent or more of the profits from their trades. New arrivals to the top 25 in 2011 included Dalio's deputies at Bridgewater, Greg Jensen and Robert Prince, the firm's co-chief investment officers. Chase Coleman, whose top double-digit returns in 2011 made him one of the industry's most sought-after managers, also zoomed into the list's upper echelons to land at spot No. 6. At 36, Coleman ranks as one of the industry's younger managers but also as one its most successful, after his Tiger Global Management made most of its money last year on the short side, or by betting that certain securities would fall, investors in his fund said. Industry veteran Paul Singer of Elliott Management Corp also scored a place in the exclusive group as did Baupost Group's Seth Klarman, widely followed in the investment community as a deep-value investor known for the originality of his securities selection. More than a dozen managers also dropped off the list as tough market conditions took a toll on performance and subsequent paychecks. David Tepper, who had made the list for years, dropped off, as did George Soros, who turned his firm into a so-called family office where he and his staff oversee only the Soros family fortune. AR has been estimating industry compensation since 2001 and the list is always closely watched, especially now that Wall Street paychecks are being scrutinized extra hard after the 2008 financial crisis. FORBES LIST AR's rankings closely correspond to the Forbes magazine list of 40 highest-earning managers of 2011, though the amount of compensation varies. In that survey the top 40 profit-makers pocketed $13.2 billion. Dalio topped the chart on that list too. However, Forbes estimated his earnings at about $3 billion, about $1 billion less than AR calculated. Determining the earnings of top hedge fund managers requires some amount of guesswork, since funds do not publicly disclose compensation. AR bases its estimates on the fees charged by funds and the percentage of capital a manager is believed to have in his fund. On the Forbes list, Simons was runner-up to Dalio instead of AR's No. 2 placeholder, Icahn, who placed third. (Reporting by Katya Wachtel; Edited by Svea Herbst-Bayliss and Steve Orlofsky) Link this Share this Digg this Email Reprints

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Reuters: Money: Ford CEO pay rose 11 percent to $29.5 million in 2011

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Ford CEO pay rose 11 percent to $29.5 million in 2011 Mar 30th 2012, 17:12 Ford Motor Company CEO Alan Mulally addresses journalists after unveiling the B-Max model car during the first media day of the Geneva Auto Show at the Palexpo in Geneva, March 6, 2012. Credit: Reuters/Denis Balibouse By Deepa Seetharaman and Bernie Woodall DETROIT | Fri Mar 30, 2012 1:12pm EDT DETROIT (Reuters) - Ford Motor Co boosted Chief Executive Officer Alan Mulally's total compensation by 11 percent to nearly $30 million last year, despite the automaker falling short of its targets on market share, quality and costs. The No. 2 U.S. automaker did, however, surpass its goals for annual profit and cash flow in automotive operations, Ford said in its 2011 proxy statement with the U.S. Securities and Exchange Commission. Mulally, 66, got $2 million in salary and $5.5 million in cash bonuses. Including stock options and equity awards, his compensation was $29.5 million, up from $26.5 million in 2010. Since Mulally became head of the company in 2006, he has led the automaker's turnaround, steering through the financial crisis without resorting to a federal bailout like its Detroit rivals General Motors Co and Chrysler Group LLC. Last year, Ford reported $20.2 billion in net income, its best performance in more than a decade and reinstated its quarterly dividend for the first time since 2006. Since 2009, the year GM and Chrysler filed for bankruptcy, Ford's shares have risen 370 percent. But last year, Ford's stock fell 36 percent. "Our stock has appreciated under his leadership," Ford spokesman Jay Cooney said of Mulally. "So, clearly, he has delivered shareholder value." But Ford did not improve its market share worldwide as much as it had expected and fell short of its cost performance targets in every region but Europe, according to the filing. Ford also failed to meet its quality objectives last year after the company fell in quality and reliability surveys due to complaints about the touch-screen entertainment system in some models. Executive Chairman Bill Ford, 54, earned $14.5 million last year, including stock options and equity awards. That is down significantly from $26.4 million in 2010, when the Ford scion received deferred compensation from 2008 and 2009. Ford's chief financial officer, Lewis Booth, 63, who will retire April 1, earned $7.7 million in 2011, a decline from the $8.2 million in compensation he received in 2010. Ford Americas President Mark Fields, 51, received total compensation in 2011 of $8.8 million, unchanged from the previous year. Joe Hinrichs, the head of Ford's Asian and African operations, earned $5.3 million last year. Hinrichs, 45, was not among the top five earners at the company in 2010. The annual retainer for each of Ford's directors will rise to $250,000 in 2012 from $200,000, the filing shows. Last year, Mulally's compensation last year raised the ire of the rank-and-file, particularly second-tier workers who earn about $15 an hour. Last year, United Auto Workers President Bob King called Mulally's payout "morally wrong." The UAW could not be reached on Friday morning for comment. From 2009 to 2011, Mulally's total compensation package totaled about $74 million, Ford figures filed with the U.S. Securities and Exchange Commission show. Some of that compensation, however, is tied up in stock options that have not yet vested and have option prices per share that are more than Ford's current value on the New York Stock Exchange of about $12.50 per share, Ford said. (Editing by Gerald E. McCormick) Link this Share this Digg this Email Reprints

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Reuters: Money: Can Twitter make Roth IRAs trendy for young?

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Can Twitter make Roth IRAs trendy for young? Mar 30th 2012, 13:54 By Mark Miller CHICAGO | Fri Mar 30, 2012 9:54am EDT CHICAGO (Reuters) - While it's not trending as high on Twitter as #oomf (which stands for "one of my followers"), the hashtag #rothiramovement is hot in the personal finance Twitterverse right now. Hashtags help Twitter users track a certain topic, and the Roth hashtag is being promoted by more than 140 bloggers. Many more social media users are retweeting, liking on Facebook and otherwise trying to achieve a singular goal: to boost interest in Roth IRAs among young people. The so-called Roth IRA Movement is the brainchild of Jeff Rose, a financial planner from Carbondale, Illinois, who runs a blog called Good Financial Cents (goodfinancialcents.com) and is a big promoter of Roths. Unlike a traditional IRA, Roth contributions are made with post-tax dollars; contributions and investment returns come out tax free as long as the account holder is over age 59-1/2 and the account has been established for at least five years. A growing number of employers offer Roths in workplace retirement plans. The need for Roth education isn't limited to young investors, though, according to a new survey by T. Rowe Price. The study shows that many investors don't fully understand the differences between Roths and traditional IRAs. For example, about one-fifth of investors age 21 to 50 mistakenly thought that traditional IRAs let investors withdraw contributions and earnings tax free -- which is actually a key feature of the Roth, not the traditional IRA. Rose was spurred to action after giving a campus lecture on budgeting and investing at his alma mater, Southern Illinois University (SIU), also in Carbondale. He asked for a quick show of hands of everyone in the room who had ever heard of a Roth IRA. No hands went up. "I wouldn't necessarily expect college seniors to know much about Roths, but I've given a number of talks to high school and university classes, and I usually get at least a few who have heard of Roths," he says. Rose turned to his blog and social media sites like Twitter (he's @jjeffrose, with more than 6,000 followers) to vent his frustration, and decided to start a movement (link.reuters.com/keh47s). "I asked a big group of bloggers if they'd be willing to blog about the benefits of the Roth IRA all on the same day to help me start a Roth IRA movement." BOOSTING FINANCIAL LITERACY Rose's motivation extends well beyond Roth accounts. Although most of his clients are aging baby boomers, he's passionate about boosting financial literacy among young people, and getting them to start saving young. "I talk all the time with adults twice my age who regret the fact that they didn't start saving or investing earlier. The most common excuse I hear is that they just didn't know better," he says. Retirement savers should first take advantage of an employer's matching program, if offered, since that's free money, says Stuart Ritter, senior financial planner at T. Rowe Price. Any funds invested after that point should go into a Roth, where you can contribute up to $5,000 annually, so long as your income is below $110,00 (single) or $173,000 (married). Adds Ritter, "If you put $5,000 into a Roth account today, you've given up that spending power, so you want to make an investment choice that gives you the most return at retirement. A Roth will give you more money to spend down the road when you retire." Roths offer much more flexibility in retirement. Unlike tax-deferred retirement vehicles, Roths have no Required Minimum Distributions (RMDS) after age 70-1/2, and your heirs could withdraw money from your Roth tax free as well. Rose already is working to extend the success of the Roth IRA Movement. He's teaming up with other personal finance bloggers to launch a regular series of online events, mainly targeting young people, under the name "The Money Uprising." "I'm a Gen Xer myself," he says. "We're the group that needs the most help." (Editing by Beth Pinsker Gladstone, Lauren Young and Andrea Evans) Link this Share this Digg this Email Reprints

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Reuters: Money: Menswear fuels global luxury boom, executives say

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Menswear fuels global luxury boom, executives say Mar 30th 2012, 14:34 By Phil Wahba NEW YORK | Fri Mar 30, 2012 10:04am EDT NEW YORK (Reuters) - Whether it's a desire to be as dapper as Don Draper on television's "Mad Men," a need to look good for a job interview or just a hankering for new duds, men have increased their spending on fancy clothes, and executives expect the boom to continue. German fashion house Hugo Boss AG, which generates the vast majority of its sales from menswear, is targeting sales gains of 50 percent to 3 billion euros by 2015, helped by a cultural shift around the world that has led more men to be interested in fashion and invest in their appearance. "Men are just waking up to the beauty of being dressed well," Hugo Boss Chief Executive Claus-Dietrich Lahrs told Reuters on the sidelines of the Fairchild Fashion Media Men's Wear Summit in New York on Thursday. The global luxury menswear market is growing at about 14 percent a year, or nearly double the pace of luxury women's wear, according to consulting firm Bain & Co. With demand in Europe cooling because of a slow economy and questions about whether the Chinese luxury market can keep up its torrid pace of growth, many retailers are betting on -- and benefiting from -- a luxury boom in the United States. Alfred Dunhill, a British men's chain owned by Swiss luxury goods group Richemont, operates three U.S. stores and aims to add five more within two years. "We look at America as a bit of an unpicked fruit," Dunhill CEO Christopher Colfer told Reuters this week. "There's a resurgence of man and our willingness to make ourselves look nice." Hugo Boss's U.S. plans include expansion of its flagship store in Manhattan's Columbus Circle, Lahrs said. Everything from the sharp 1960's styles on shows such as "Mad Men" -- a popular drama about a New York advertising agency -- to the proliferation of fashion blogs have ignited men's interest in fashion and nicer clothes, executives say. "Those shows are having an influence on the way guys are dressing," said Matthew Singer, men's fashion director at Neiman Marcus Group. Men are also less shy about buying accessories such as bracelets and scarves, he said. Saks Fifth Avenue has expanded its men's private brand collection and this week CEO Steve Sadove told investors that it will probably be Saks' largest men's brand this year. Coach Inc is also banking on more business from men. Globally, Coach expects sales of men's products this year to reach $400 million, or 8 percent of total sales, and climb to $1 billion within a few years. For the New York-based leather goods maker, it is sort of a return to its roots: Coach started in 1941 as a men's business. In 1997, men's goods still accounted for 25 percent of sales. Men have also been fueling luxury sales in China, the fastest growing luxury market, despite a recent slowdown in the pace of growth there. Trinity Ltd, a leading high-end menswear retailer in China, said same-store sales rose 19.5 percent last year, and that it eventually plans to operate 500 stores in greater China, up from about 370 now. "Men do not shop that often, do not buy a lot but they are consistent. Men are very loyal to brands," Trinity group managing director Sunny Wong told Reuters this week. Even outside of the pricey luxury market, men in the United States are spending more on clothes. American men increased their spending on clothing more than women did in 2011, buying more dress clothes in particular as the economy improves, a study showed. Men's clothing sales rose 4 percent during the year, while women's grew 3 percent, market researcher the NPD Group said on Thursday. (Reporting By Phil Wahba in New York; Editing by Steve Orlofsky) Link this Share this Digg this Email Reprints

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Reuters: Money: Investor advocates urge SEC to enhance broker rules

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Investor advocates urge SEC to enhance broker rules Mar 30th 2012, 14:07 By Suzanne Barlyn Fri Mar 30, 2012 10:07am EDT (Reuters) - New U.S. Securities and Exchange Commission rules that could require certain brokers to act in clients' best interests should enhance, not replace, laws that establish responsibilities for some financial advisers, a coalition of investor advocacy and trade groups wrote late Thursday. The letter to SEC Chairman Mary Schapiro, from groups that include the Consumer Federation of America and AARP, is the latest development in an ongoing debate about upgrading the standard of client care for brokers who give personalized investment advice. The agency is developing new rules that would protect investors by creating higher standards for those brokers. Calls for the change gained traction during the 2008 financial crisis. While the brokerage industry generally supports the change, it is concerned about how it may affect how brokers are compensated, among other things. Brokers are paid through commissions they receive when investors buy and sell securities. Many other types of financial advisers receive a flat annual fee for their services. Enhancing broker responsibilities to clients would "provide badly needed and long overdue protections for individuals" but the changes must be "properly implemented," the coalition wrote. Financial advisers who register with the SEC must act as fiduciaries, or in their clients' best interests. But brokerage firm advisers, who must register with the industry's private regulator, the Financial Industry Regulatory Authority, only have to sell investments that are "suitable," based on factors such as a client's age and risk tolerance. Brokers may earn more from some investment options they pitch to clients, something investor advocates say could motivate a broker to push a more lucrative product. Flat fees that investment advisers charge, along with the different rules they must follow, typically prevent such potential conflicts of interest, say investor advocates. The coalition in its letter addressed points made in a July letter to the SEC from the Securities Industry and Financial Markets Association, or SIFMA, a trade group representing major retail brokerages. SIFMA expressed support for a fiduciary standard for brokers but said using established case law and legal interpretations of "fiduciary" in the context of the brokerage industry would be "commercially impractical" because of the differences in how brokerages and investment advisers run their businesses. While the coalition said it understands that the SEC must consider how new regulations could affect the brokerage industry's ability to earn money and sell certain types of securities, the agency should also "avoid an over-response" to the industry's concerns. The industry, the coalition wrote in its letter, either misunderstands fiduciary law or is making an "unwarranted effort" to limit the scope of possible changes. Other groups that signed the letter include the Investment Adviser Association and the Certified Financial Planner Board of Standards. A SIFMA spokesman declined to immediately comment. (Reporting By Suzanne Barlyn; Editing by Jennifer Merritt and Mark Porter) Link this Share this Digg this Email Reprints

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Reuters: Money: Refinancings drive first quarter leveraged lending, M&A absent

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Refinancings drive first quarter leveraged lending, M&A absent Mar 30th 2012, 13:20 By Ioana Barza Fri Mar 30, 2012 9:20am EDT NEW YORK, March 30 (RLPC) - Volatility subsided in the first quarter of 2012 following the shorter, steeper cycles observed last year. As a result, 1Q12 high yield volumes were robust, but they were driven by refinancings rather than new money transactions, according to Thomson Reuters LPC data. Bond investors poured more cash into high yield bond mutual funds in the first three months of 2012, at $19 billion, than in each of the last two full years, which totaled around $14 billion each, according to Lipper FMI. 1Q12 high yield bond issuance broke the prior $83.25 billion record set in 4Q10, reaching $88 billion. 1Q12 U.S. leveraged loan lending was up 42 percent from the prior quarter, at $144 billion, while institutional loan issuance doubled to $60.52 billion, according to Thomson Reuters LPC. The outlook for merger and acquisition financings remains muted. Strategics and private equity buyers may be sitting on cash, but are reluctant to pull the trigger on new M&A transactions. A few factors are at play: the buyer/seller mismatch given a rapid rise in valuations, an election year and global macroeconomic uncertainty. The absence of M&A transactions, coupled with strong investor demand for loans, led to issuers pursuing refinancings or amend and extends. Some were running up against their maturities while others refinanced opportunistically bringing aggressive deals to market that tested investors' tolerance for low yields. Heading into 2Q12, investor demand continues to outpace supply of new loan product and arrangers are competing fiercely to book deals. Structures may begin to deteriorate given that yields in the institutional market have already tightened significantly. A post-crisis record, $29 billion of high yield bond proceeds was used to pay down loans in 1Q12, leaving investors with extra cash to reinvest from prepayments. However, the makeup of the loan investor base continues to shift. Weekly loan mutual fund flows were flat to down, totaling a positive $106 million through March, compared to $14 billion last year, according to Lipper FMI. Conversely, collateralized loan obligation (CLO) issuance gained traction with $5.65 billion priced this year and another roughly $2 billion in market, according to Thomson Reuters LPC. Market sources expect that CLO issuance could reach $20-25 billion this year, compared to $13.24 billion in 2011 and $4 billion in 2010. However, given the volume of existing CLOs reaching the end of their re-investment periods, net new CLO demand remains negative. CLOs currently hold roughly $250 billion in loans with roughly 25 percent of the underlying loan volume coming due in 2014 and nearly 60 percent coming due between 2016 and 2018, according to LPC Collateral. Banks also sought high-quality leveraged paper in 1Q12, and at $83.5 billion, leveraged pro rata lending outpaced the $60.53 billion in institutional issuance. Banks have consistently remained active buyers in the past few years. Given recent investor pushback, there may be a yield threshold in the institutional space. Meanwhile, market players expect yields may fall further on pro rata paper on the back of strong demand from banks. However, rising cost of funds and capital constraints continue to plague select continental European banks. Lenders say spreads on investment grade loans, both drawn and undrawn, will stabilize in the near term as a result. Investment grade lending was down 54 percent in 1Q12 relative to the prior quarter's $116.82 billion, and down 20 percent from 1Q11. Heading into 2012, most issuers had already addressed their 2012-2013 maturities, rushing to get ahead of regulatory changes and shifts in bank appetite by locking in longer tenors and favorable terms. According to Thomson Reuters LPC's quarterly survey, 20 percent of investment grade lenders are more constrained this year with regard to total availability of capital while only 10 percent are less constrained. Lenders that are constrained have remained active but selective. In a dynamic regulatory and economic environment, lenders are carefully evaluating relationships and deploying capital strategically. These lenders are exiting or reducing commitments in cases where they cannot justify the relationship, but in others, they are stepping up for a bigger role. Variability in bank behavior will be one the biggest challenges for the investment grade market in 2Q12. (Reporting By Thomson Reuters Loan Pricing Corp analyst Ioana Barza) Link this Share this Digg this Email Reprints

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