Bloomberg Settles SEC Charges of Misleading Pricing Disclosures

Updated with clarification

Bloomberg Finance LP agreed to pay a $5 million fine to the Securities and Exchange Commission over charges the company provided misleading disclosures related to its paid subscription service for fixed-income valuations.

Bloomberg’s BVAL service provides daily prices for all asset classes, including certain fixed-income securities that are thinly traded and hard to price. According to a cease-and-desist order filed last week by the SEC, Bloomberg had been misleading customers since 2016 by failing to disclose that its independent valuations of fixed-income securities were derived from proprietary algorithmic methodologies that could be based on a single data input.

“Bloomberg made disclosures to its customers that did not explicitly include that valuations for certain thinly-traded fixed-income securities could, in certain circumstances, be largely driven by a single data input, such as a broker quote,” the SEC said in its order. “The omission that valuations could be largely driven by a single data input made the statements to customers regarding valuation methodologies materially misleading.”

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The SEC’s order said Bloomberg was aware that its customers, including mutual funds, could be using BVAL prices to determine fund asset valuations, which can impact securities prices.

“Bloomberg has assumed a critical role as a pricing service to participants in the fixed-income markets and it is incumbent on Bloomberg, as well as on other pricing services, to provide accurate information to their customers about their valuation processes,” Osman Nawaz, chief of the SEC’s complex financial instruments unit, said in a release. “This matter underscores that we will hold service providers, such as Bloomberg, accountable for misrepresentations that impact investors.”

The order, which included Bloomberg’s settlement, noted that Bloomberg voluntarily engaged in remedial efforts to make improvements to its BVAL line of business, including retaining an outside expert to make improvements, as well as making additional disclosures regarding its valuation methodologies.

Bloomberg did not immediately respond to a request for comment.

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Tags: Bloomberg Finance, BVAL, cease-and-desist order, Fine, fixed-income securities, Osman Nawaz, SEC, Securities and Exchange Commission, Settlement

Investment chiefs Jonathan Grabel of LACERA and Thomas Richards of the University of Missouri explain how they have broadened their portfolios’ range of investments.

Diversification is a salubrious goal for asset allocators, especially ones who remember the wipeout from the financial crisis of 2008 and 2009.

In the latest edition of the 2023 CIO Allocator Insights webinar series, available on demand, two seasoned and well-respected CIOs detailed how they seek to achieve diversified portfolios able to withstand bad times and thrive in good times. Jonathan Grabel, CIO of the Los Angeles County Employees Retirement Association ($74 billion assets under management), and Thomas Richards, CIO of the University of Missouri System ($9 billion AUM) detailed how they have taken their plans far beyond the traditional offerings of stocks and bond.

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The Missouri program “learned the lessons of the financial crisis” and adopted them, said Richards, who took over in 2011, on the heels of the crisis. More recently, the plan has had to make some changes. In 2017, it had about a third of its assets in government securities. “But rising interest rates have had an impact,” he said. The allocation to Treasurys and Treasury inflation-protected securities has since been cut to 15%. Richards said the plan also now has strong positions in derivatives, which give it flexibility.

Grabel, who became LACERA’s CIO in 2017, also indicated that climbing rates have moved the fund into greater diversification. Equities once constituted half of the portfolio, and today that has shrunk to 32%.

To get a better handle on the roles played by each asset class, LACERA now groups them into four major categories. Growth, which makes up 51% of the holdings and is the largest category, combines stocks with private equity and non-core real estate. The second largest group, at 21%, is called “risk reduction and mitigation” and includes government and investment-grade corporate bonds, diversified hedge funds and cash. The other two categories are credit and real assets.

Protecting the downside is a big imperative for the two CIOs. Grabel said LACERA pays out $4 billion yearly to beneficiaries and receives $3 billion in contributions from plan members and the county. Bridging that gap is the role of investments. That’s why smart rebalancing is key for him. “You don’t want to be in a down market and be a forced seller,” he observed, adding that the plan’s portfolio gained in fiscal 2022 (ending last June) when capital markets all tanked.

Richards, whose investments also increased, noted that losing money, especially big losses, is hard to work out from. In 2008, the fund lost 28%, and it took almost 10 years to erase that loss.

Of course, their strategies go far beyond protecting what they have. “Everyone wants alpha,” Grabel said. But attaining that is no mean feat. At LACERA, he said, technology has enabled them to “have granular insight into the portfolio,” so he knows how it is faring in real time.