Trustee reputation in securitization: When does it matter?

We consider the role of trustees–who are nominated to protect the interests of investors–in securitization pricing and whether investors rely on them to mitigate risks. In particular, we examine the effect of trustee reputation on initial yield spreads of European mortgage‐backed security (MBS) issuances between 1999 and the first half of 2007. We find that engaging reputable trustees led to lower spreads during the credit boom period prior to the 2007–2009 financial crisis. Our findings suggest that trustees’ reputation was considered by investors to be more important when risk assessment became more challenging.     

Collective Investment Schemes: The Role Of The Trustee

There has been a lack of analysis of the justification for trustees in collective investment schemes, although a study of the topic is pertinent because of the prominent position occupied by trustees in certain schemes. One possible justification, considered in this paper, is the existence of a collective action problem. Four types of schemes are examined: debentures, public unit trusts, life-insurance firms and superannuation funds. While each of these schemes can exhibit a considerable collective action problem, only the first three typically involve a trustee. We conclude that even where a collective action problem exists, there is not necessarily the need for a trustee. There may be more efficient solutions to the problem.     

401(k) Investment Decisions and Social Security Reform

Abstract

This paper uses the 1995 Survey of Consumer Finances to show that 401(k) participants with an underlying defined benefit plan are more likely to invest in equities than are participants whose 401(k) is their primary plan. This suggests that workers with a guaranteed source of retirement income are more likely to invest their other retirement assets more aggressively. Removing this guarantee might result in more conservative investment. Therefore, using current 401(k) asset allocation behavior to project income under a Social Security individual account system with reduced guaranteed benefits could overstate returns to these accounts, thus overstating their attractiveness relative to the current system.     

Piercing the veneer of the trust in the South African Trust Law: Liability of trustees of a business trust for fraudulent trading

The trust, whichever form it is moulded in, is a useful instrument for estate planning. However, many family businesses nowadays take the form of a business trust without any change in the circumstances surrounding it. This submits the trust to diatribe and suspicion because the protection the trust offers is often exploited. In Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA) it was obiter the court's view that it might be necessary to extend well-established company law principles also to trusts. The court referred to the Turquand principle and the principle of “piercing the corporate veil”. The motivation is that assets allegedly vesting in the trustees of a trust, in fact belong to one or more of the trustees personally. This view may have obvious and important implications in case of the sequestration of the trustee's estate. It implies that the assets concerned may be used in satisfaction of the trustee's debts because “in fact it belongs to the trustee”. However, it may also be used in satisfaction of debts “to the repayment of which the trustees purported to bind the trust”. Thus, if the trust's estate is sequestrated, the assets may be used in satisfaction of the trust's debts. If the personal estate of the trustee is sequestrated, these assets may be utilized in satisfaction of the trustee's personal debts. Consequently it is relevant to ask the question whether the trustee's personal estate (irrespective of sequestration) would be liable for restitution in favour of the beneficiaries for these actions in breach of trust in competition with the creditors of the trustee. Copyright © 2008 John Wiley & Sons, Ltd.     

Shifting responsibility to workers: the future of retirement adequacy in the United States

While many 401(k) participants at large companies can expect replacement of nearly 100% of preretirement income, not all workers participate in their 401(k) plan. Moreover, the authors show that even among participants, the extent of retirement preparedness depends on defined benefit (DB) plan coverage and retiree medical benefit generosity. Given recent trends in the elimination of DB plans and retiree medical subsidies and the voluntary nature of 401(k) participation, retirement income responsibility is increasingly shifting to workers. The authors discuss how employers might help workers meet their retirement income needs in this changing environment.     

Die Rechtsstellung der Prämien-, Bedingungs- und Deckungsstocktreuhänder nach dem VVG und dem VAG

The legal statuses of ?trustee for premium changes“, ?trustee for condition changes“ and ?trustee for coverage fund“ are comparable. All of them act under private law. Their function is slot in ahead of the grievance control of the supervising agency. The trustees are supposed to relieve the supervising agency and to inform it about the competitive practices of the insurance companies. The legal provisions concerning the trustees for premium and condition changes as stated in the VAG rank equally with those stated in the VVG. The rights to adapt contracts stated in §§ 172 and 178 g VVG have the characteristics of a one-sided right according to § 315 BGB. These rights allow the insurance company to pass on the risk of future changes of actuarial bases. Under private law, the independence of the trustees is merely a formal condition. Their declaration of consent has to include the reasons for the consent.     

Performance and Employer Stock in 401(k) Plans

Participants in 401(k) retirement plans violate the basic principle of diversification by investing significant fractions of their savings in their employers'equity. This paper characterizes investors'active changes to their company stock investment over time by analyzing new inflows and transfers. The average investor seems to base active changes on salient information, paying attention to past returns, volatility, and business performance. Past returns, over a three-year horizon, predict higher inflow allocations and transfers, whereas volatility and business performance only have a weak effect. The sensitivity to past returns is asymmetric, with investors reacting more strongly to positive and above-S&P500 returns.     

The Role of Company Stock in 401(k) Plans

The Enron situation has caused the retirement income policy community to focus increased attention on the desirability of current law and practices regarding company stock in 401(k) plans. Several proposals have been advanced to limit the exposure of 401(k) participants to company stock. I suggest that, contrary to conventional wisdom, the introduction of company stock into 401(k) plans is not simply more risk for no additional (expected) return. Rather, the introduction of this asset class into the 401(k) participant's portfolio may have beneficial influences via the differential asset allocation. I create a model to simulate the likely financial impact of prospectively eliminating company stock from 401(k) plans and find that average balances are expected to be between 4.0 and 7.8 percent larger if company stock is retained.     

The Effects of Advertising on Mutual Fund Flows: Results from a New Database

We examine 471,000 mutual fund company advertisements from 1997 to 2003 to study advertising's effect on fund inflows. We find advertising is generally ineffective in attracting inflows but was more effective during the bear market despite smaller advertising expenditures during this time. The top 10 advertisers in our sample were most successful in capturing inflows. These companies generated inflows with mutual fund ads; other companies succeeded when advertising their other products and their brand image. Within a fund family, advertising affects the flagship fund differently than the other funds. Sample firms appeared unable to choose correctly between print and TV ads.     

What Do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives

We ask whether mutual funds’ flows reflect the incentives of the brokers intermediating them. The incentives we address are those revealed in statutory filings: the brokers’ shares of sales loads and other revenue, and their affiliation with the fund family. We find significant effects of these payments to brokers on funds’ inflows, particularly when the brokers are not affiliated. Tracking these investments forward, we find load sharing, but not revenue sharing, to predict poor performance, consistent with the different incentives these payments impart. We identify one benefit of captive brokerage, which is the recapture of redemptions elsewhere in the family.     

Buffer stock saving in retirement accounts

We use a dynamic programming model to explore the possibility and extent of precautionary saving in tax-sheltered accounts such as the 401(k). The main policy experiment examines the behavior of saving for different levels of unemployment insurance (UI), which is a perfect substitute for precautionary saving against job loss. Our results indicate that increasing the generosity of UI crowds out 401(k) contributions made by younger workers, who save primarily for precautionary reasons. At the aggregate level, we find that 401(k)s increase national saving and that the magnitude of the effect depends on the generosity of UI.     

Management Information Needs and Perceptions in Smaller Charities: An Exploratory Study

This article explores the extent and nature of management information needs of trustees, as perceived by selected trustees of smaller charities. It links these perceptions to questions concerning charity performance, drawing on assumptions in the literature (often implicit) that the quality of management information can be gauged. Also, that there is a corresponding link between meeting management information needs and improving organisational performance. The research methodology comprised a general pilot study and trustee survey, followed by accounts analysis and in-depth interviews in selected charities. From this, vignettes of trustees' perceptions were drawn up and case study accounts of three charities' approach to trusteeship, management information handling strategies, and self-assessment of performance were developed. The study discovered the existence of an 'expectations gap'between what charity trustees are supposed to do and what they can actually achieve.     

It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans

This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own affiliated funds. Using a hand‐collected data set on the menu of investment options offered to plan participants, we show that fund deletions and additions are less sensitive to prior performance for affiliated than unaffiliated funds. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, we find that the subsequent performance of poorly performing affiliated funds indicates that this favoritism is not information driven.     

Reinforcement Learning and Savings Behavior

We show that individual investors over‐extrapolate from their personal experience when making savings decisions. Investors who experience particularly rewarding outcomes from 401(k) saving—a high average and/or low variance return—increase their 401(k) savings rate more than investors who have less rewarding experiences. This finding is not driven by aggregate time‐series shocks, income effects, rational learning about investing skill, investor fixed effects, or time‐varying investor‐level heterogeneity that is correlated with portfolio allocations to stock, bond, and cash asset classes. We discuss implications for the equity premium puzzle and interventions aimed at improving household financial outcomes.     

When boards use related parties: outsourcing and superannuation fund performance

Superannuation funds heavily outsource key fund functions to service providers who play a crucial role in superannuation fund operations and affecting Australians’ retirement savings. We examine the impact of related party service provider usage and trustee‐director affiliation on investment performance. We find that for‐profit funds significantly underperform when using related party service providers. The underperformance is more severe when the board is controlled by more affiliated trustee‐directors and belongs to a vertically integrated conglomerate group. Our results raise concerns about whether recent regulatory reforms increasing trustee‐directors’ duties effectively address the conflicts of interest inherent in related party service provider arrangements.     

Family Matters: Rankings Within Fund Families and Fund Inflows

Abstract:  This paper examines the influence of the position of a fund within its family on its subsequent net-inflows. Our empirical study of the US equity mutual fund market shows that reaching a top position within the family leads to large inflows. These inflows accrue beyond those expected, given the performance of the fund in its respective market segment. The effect is much stronger in large families than in small families. We also find that inflows significantly increase if a fund moves into the top positions within its family from one year to another. These results lead to competition within the fund family and to important risk taking incentives for fund managers.     

The new retirement reality: calculating the true cost of retirement income adequacy

Recognizing that 401(k) plans are emerging as many employees' sole source of employer-sponsored retirement income, plan sponsors are increasingly adding paternalistic plan features to increase the amount--and effectiveness--of dollars invested in 401(k) accounts. The authors describe the results of a study they prepared for Hewitt Associates that assesses retirement income adequacy for individuals represented in a plan participant database of 1.8 million individuals. The study includes analysis of retirement income adequacy for the aggregate population as well as the results for different subgroups, reflecting factors such as whether individuals actively contribute; the impact of different levels of retiree medical coverage; and the presence of a defined benefit pension. Finally, the authors discuss how plan sponsors can bolster the adequacy of retirement income from 401(k) plans, depending on employer objectives.     

Do Markets Like Frozen Defined Benefit Pensions? An Event Study

An increasing number of North American companies are freezing or terminating their traditional defined benefit (DB) pension plans. In this article we document a positive announcement effect when a publicly traded company discloses that it has partially or fully frozen its DB plan and replaced it with—or enhanced—the 401(k) defined contribution (DC) plan. This positive risk‐adjusted return is greater for firms with higher beta and/or lower return on equity (ROE) prior to the freeze. In other words the positive impact is more pronounced for firms that are likely to face financial distress if they maintain their traditional pension plan and the associated long‐term promises.     

Style chasing by hedge fund investors

This paper examines whether investors chase hedge fund investment styles. We find that better-performing and more popular styles are rewarded with higher inflows in subsequent periods. This indicates that investors compare hedge fund styles in terms of recent performance and popularity, and they subsequently reallocate funds from less successful to more successful styles. Furthermore, we find evidence of competition between individual hedge funds of the same style. Funds outperforming the other funds in their styles and funds whose inflows exceed the average flows in their styles experience higher inflows in subsequent periods. One of the reasons for competition among same-style funds is investors’ search for the best managers. The high minimum investment required to invest in a hedge fund limits investors’ diversification opportunities and makes this search particularly important. Finally, we show that hedge fund investors’ implementation of style chasing in combination with intra-style fund selection represents a smart strategy.     

The Impact of IFRS Adoption on Foreign Direct Investments: Insights for Emerging Countries

International Financial Reporting Standards (IFRS) adoption research supports the arguments of an increase in the credibility of corporate financial information. We investigate the association between IFRS adoption and foreign direct investments (FDI) inflows. The aim is to analyse several characteristics of the adoption process specific to European emerging countries. Our results indicate that the countries adopting IFRS are more likely to benefit from a higher increase in FDI inflows than the non-adopters. Additional tests reveal that the impact is driven by the adoption level related both to listed and unlisted companies. IFRS adoption by unlisted companies has a lower impact on FDI inflows, as compared to IFRS adoption by listed companies. Furthermore, difference-in-difference analysis illustrates a higher increase of FDI inflows after adopting IFRS in the case of non-European Union (EU) countries as compared to EU countries.