US Department of Labor to Expand Definition of 'Fiduciary'

In an effort to protect participants from conflicts of interest and self-dealing, the Department of Labor (DoL) has proposed expanding its definition of the term "fiduciary" under federal retirement law.

(October 21, 2010) — The US Department of Labor’s Employee Benefits Security Administration has proposed an expansion of whom the agency would consider a fiduciary to include consultants that provide advice to retirement plans on proxy voting and the hiring of investment managers, more broadly defining the term as a person who provides investment advice to plans for a fee or other compensation.

The regulation, which has been reviewed by the Office of Management and Budget, has not been updated since the Employee Retirement Income Security Act (ERISA) first went into effect during the Ford administration. The proposed rule stipulates that broker-dealers who make securities recommendations to retirement plans would be subject to fiduciary requirements, thus giving a broader and clearer understanding of when providing such advice is subject to ERISA fiduciary standards, according to a statement released today by the DoP.

“The proposal amends a 35-year-old rule that may inappropriately limit the types of investment advice relationships that give rise to fiduciary duties on the part of the investment advisor,” the DoP stated, adding that the proposed rule takes into account major changes in both the financial industry and the expectations of plan officials and participants who receive investment advice.

The statement concludes that the proposed rule would define certain advisers as fiduciaries even if they do not provide advice on a “regular basis.” Sponsors, fiduciaries, participants, and beneficiaries of pension plans and individual retirement accounts, as well as providers of investment and investment advice related services to such plans and accounts would all be impacted by the rule upon adaptation.

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“The proposal will ensure that plans receive advice based on reliable information that protects the interests of plan participants and beneficiaries,” said Phyllis C. Borzi, assistant secretary of labor for EBSA, in a statement. “We believe that this proposal more closely reflects the statutory language of ERISA and the realities of the current investment marketplace, and therefore will ensure those who provide investment advice are held accountable as fiduciaries under the law.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Survey Shows SWF Acquisitions Double in H1, Reflecting Confidence in Global Markets

A report released this week shows the number and value of acquisitions made by sovereign wealth funds followed by the Monitor Group and Fondazione Eni Enrico Mattei (FEEM) doubled in the first half of 2010, with SWFs spending the most money in Europe, which accounted for 40% of the total expenditure, followed by North America, which accounted for about a third of the total value of deals, or about $7.5 billion.

(October 21, 2010) — The number and value of acquisitions by sovereign wealth funds doubled in the first half of 2010 compared to the same period the previous year, according to a report by the Monitor Group and Fondazione Eni Enrico Mattei (FEEM) — an international research center based in Milan, Italy.

The increase in activity illustrates the increasing confidence in global markets, the report said. “Though the value of SWF investment in H1 2010 represented less than 40% of the value of investment in H2 2009, there has been a continued uptick in the number of investments made,” said William Miracky, a senior partner at Monitor Group, in the report. “Sovereign wealth funds’ confidence in global markets seems to be on the rise, and the increase in the number of investments in H1 2010 compared to a year earlier is an encouraging sign.”

The study analyzed SWF transactions in the first half of 2010, finding that 16 of the 33 SWFs in the Monitor/FEEM database undertook 92 publicly reported investments totaling $22.2 billion in that time period — double the number and value of the same period in 2009. Another major trend in SWF activity over the past year: attracting private capital. “This has raised the question that if a SWF is financed by something other than sovereign wealth, should we still think of it as a sovereign wealth fund?,” the report questioned, analyzing why money is being raised in this way, how it affects SWFs’ investment strategies, and whether it changes their sovereign nature.

The most popular sectors for attracting SWF activity: financial services with 19 transactions totaling $7.4 billion; natural resources, 16 purchases for $4.3 billion; and utilities, six deals totaling $4.3 billion. In financial services, according to the research, SWFs favored alternative assets over direct equity stakes in banks or recapitalizing their balance sheets. The study also revealed that SWFs have increased allocations to equities, commodities, real estate, and infrastructure during the first half of 2010, with fund officials pursuing private equity and hedge funds.

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Furthermore, more than 75% of SWFs’ total deal value, or $16.3 billion, and about 47% of the deals occurred in developed nations. “A growing number of SWF investments occurred in countries such as India, Russia and … sub-Saharan Africa,” the study stated. “While the total value of these investments remains comparatively small — around $1.5 billion — it represents an ongoing trend of the geographic diversification of SWF portfolios.”

To see a magazine Interrogation with the Monitor Group and FEEM, click here.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742