NewsMine — economy — united-states — 2004 — 2004-jan-mar — Viewing Item

Mutual fund 40bn inflows 2003 { February 5 2004 } Original Source Link: (May no longer be active)    http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1075982326577&p=1012571727088 http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1075982326577&p=1012571727088 Scandal fails to stem mutual fund surge By Deborah Brewster in New York Published: February 5 2004 20:04 | Last Updated: February 6 2004 1:51 Net inflows to US mutual funds rose to almost $300bn in 2003, the highest for seven years, as investors flocked back following the stock market recovery. Despite the widening scandal over mutual fund trading abuses, the surge in new money continued in January with an estimated $40bn flowing into equity and balanced funds, according to fund researcher Strategic Insight. The figures suggest the scandal has had only a short-term impact on a few fund managers. More than 20 companies have come under investigation for allowing short-term traders to arbitrage fund shares at the expense of their long-term investors. On Thursday, Massachusetts Financial Services, the US fund management arm of Canada's Sun Life Financial, became the latest company to settle with regulators over alleged improper trading. MFS will pay $351m - $225m in restitution and fines, $125m in fee cuts over five years and $1m in investor education - in a deal struck with the Securities and Exchange Commission and Eliot Spitzer, New York attorney-general. John Ballen, MFS's chief executive, and Kevin Parke, its investment chief, have been banned from serving as officers or directors of public companies for three years. MFS made Robert Manning its new chief executive. Mr Spitzer said investors had lost $175m as a result of MFS allowing market timing of its fund shares. "Fees will continue to be a central part of our negotiations," he said. "A new fee structure is required and we will continue to scrutinise the fees of companies we are holding talks with." Hinting at a settlement with the Canadian Imperial Bank of Commerce, which has lent $1bn to hedge funds for market timing, Mr Spitzer said the bank was "co-operating with my office and we hope to reach a satisfactory conclusion". Hedge funds devoted to market timing had assets of $5.5bn in September last year when Mr Spitzer began his probe, according to Hedge Fund Research. However, $3bn was pulled out of the funds after the scandal hit. Hedge funds following the strategy, which is not illegal, returned 15 per cent for the year. The inflows into mutual funds last year follow the pattern of retail investor money flowing back to the market after prices rise, despite losses many investors suffered in 2000. Don Cassidy, a senior analyst at fund tracker Lipper, said: "People don't have the guts to get in at the bottom. When we see things going well, that's when we want to jump in." The total net inflow of $291bn for 2003 was close to the record inflows reached in1993 and 1997. In 2002, inflows were only $170bn. Last year's inflows and the rise in the market took total assets in US mutual funds to $7,900bn.

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