The JOBS Act and Private Placements
(Aug 2012)
The Jumpstart Our Business Startups (JOBS) Act (PDF) that was enacted this past April was ostensibly designed to increase investment opportunities by relaxing certain regulatory requirements on small businesses. There are several excellent reviews of the provisions of the JOBS Act, which not surprisingly is a lengthy and impenetrable document, and there has been considerable debate between proponents, who argue that increased investment opportunities can help support new business ventures...
Hedge Fund "Side Pockets" Explained
(Jul 2012)
Hedge funds can be extremely complicated investments, and one of the features that contributes to their lack of transparency is their so called 'side pocket' accounts. Side pockets have drawn scrutiny from the SEC and have been the subject of high profile investigations (see also) due to their potential for abuse from hedge fund managers eager to hide losses from investors.
Side pockets are essentially separate accounts that a hedge fund may use to separate illiquid or thinly traded assets...
Problems Surrounding the Complexity of Annuity Products
(Mar 2012)
On Sunday, The Wall Street Journal reported the felony-theft conviction of Glenn Neasham who had sold a complex annuity to an elderly woman. The conviction -- which comes with a 90-day sentence -- was handed down by a state-court jury in Lake County, CA. From the article:
The case underlines authorities' continuing discomfort with "indexed" annuities, savings products that pay interest tied to the performance of stock- and bond-market indexes. Insurers guarantee that buyers won't lose any of...
WSJ: Private-Equity Fund in Valuation Inquiry
(Feb 2012)
There is an article in the Wall Street Journal today concerning the alleged exaggeration of an asset's value in a private-equity fund. From the article:
The potential exaggeration in the [Oppenheimer Global Resource Private Equity Fund LP] grew to more than $4 million, according to documents shared with Oppenheimer investors. The bulk of this markup came as the fund was reaching out to potential investors in the fall of 2009, and helped push the fund's reported internal rate of return to 38%,...
Home Equity: Changing Perspectives
(Feb 2012)
We wanted to write a quick post highlight the changing perspectives of industry experts concerning something as mundane as home equity. The LA Times reported in August 2005 that, due to the rapid appreciation of real estate values and perceived wealth accumulation, consumers were beginning to spend more freely. In fact, at the time it was becoming commonplace (and even suggested by experts) to cash out equity in your home to finance otherwise unobtainable, and sometimes transient, purchases...
In the News: Structured CDs
(Feb 2012)
Bloomberg News reported this week that FINRA is investigating a relatively new type of product that ties the returns of certificates of deposit (CDs) to derivatives. These products are known generally as 'Structured CDs' (SCDs) but also go by 'Index-Linked CDs', 'Equity-Linked CDs' or 'Market-Linked CDs'. There have also been news stories concerning Market-Linked CDs issued by Wells-Fargo and Equity-Linked CDs issued by Goldman Sachs in recent years.
SCDs have existed since the late 1980s,...
President and CIO of Direxion admits that leveraged ETFs are not appropriate for most investors
(Jan 2012)
Today Seeking Alpha posted an interview with Dan O'Neill, President and CIO of Direxion, one of the first and best known issuers of leveraged ETFs. Readers familiar with our work on leveraged ETFs know that we feel these products are almost always unsuitable for retail investors.
Surprisingly enough, Mr. O'Neill agrees completely:
The leveraged indexed ETFs are used by very tactical investors, and so there we have bull and bear funds. They have daily betas, which means that essentially...
In the News: UBS & Morgan Stanley Subpoenaed over Reverse Convertibles
(Jul 2011)
UBS, Morgan Stanley Subpoenaed Over Reverse Convertibles
Bloomberg news reported today that the state of Georgia had sent subpoenas requesting for data and other information from UBS AG, Morgan Stanley and Ameriprise Financial Inc.. The state is investigating whether these brokerage firms violated the securities laws of Georgia in their sale of reverse convertibles to investors of Georgia.
Sales of reverse convertibles have grown, and investors who are being sold these structured...
In the News: Equity-Indexed Annuities
(Aug 2010)
An annuity makes periodic payments to the holder of the annuity. Fixed annuities make fixed payments and variable annuities make variable payments. Equity-indexed annuities (EIAs) are similar to both fixed and variable annuities in that they pay an interest rate linked to an equity index and guarantee a minimum interest rate. EIAs are especially marketed to retirees by the insurance industry.
Forbes published an article on EIAs. The article evaluates the claims made by typical marketers...
In the News: Equity Indexed Annuities
(May 2010)
Forbes published an article on equity-indexed annuities (EIAs). It describes the history of and market for EIAs, compares EIAs with other fixed and variable annuities, and briefly weighs the advantages and disadvantages of EIAs.
An annuity makes periodic payments to the holder of the annuity. There are fixed annuities that make fixed payments and variable annuities that make variable payments. EIAs are similar to both fixed and variable annuities in that they pay an interest rate linked...
