These are some of the compliance-related stories that recently caught my attention.
The Shift from Active to Passive Investing: Potential Risks to Financial Stability? by Patrick McCabe, Board of Governors of the Federal Reserve System
In our working paper, we examine four channels by which the active-to-passive shift may affect financial stability: (1) effects on liquidity transformation and redemption risk for investment funds; (2) growth of passive products with strategies that amplify asset-price volatility; (3) increased asset-management industry concentration; and (4) effects of indexing on the prices, volatility, and comovement of financial assets.[More…]
Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst
We focus on understanding the structural incentive problems that motivate index fund managers to under-invest in stewardship and defer to corporate managers, thereby impeding their ability to deliver on their governance promise. We stress that in some cases, fiduciary norms, or a desire to do the right thing, could lead well-meaning index fund managers to take actions that differ from those suggested by a pure incentive analysis. Furthermore, index fund managers also have incentives to be perceived as responsible stewards by their beneficial investors and by the public—and thus, to avoid actions that would make salient their under-investing in stewardship and deferring to corporate managers. These factors could well constrain the force of the problems that we investigate. However, these structural problems should be expected to have significant effects; the evidence we present in Part III demonstrates that this is, in fact, the case. [More…]
Dissecting the Conundrum of Investing in Hedge Funds Despite High Fees and Mediocre Returns by Cary Martin Shelby
October 2018 ended with the hedge fund industry suffering its worst monthly decline since September 2011, according to the HFRI Fund Weighted Composite Index. Some commentators are predicting that 2018 will end with the hedge fund industry experiencing its worst annual performance since the failure of Lehman in 2008. This news comes on the heels of a disastrous decade for hedge fund performance. In the years following the financial crisis of 2007-2009, the S&P 500 consistently outperformed the hedge fund industry. Even Warren Buffet famously predicted that a basket of hedge funds would underperform the S&P 500 over a 10-year period from 2007-2017. He in fact won that bet as his basket of hedge funds earned 2.2 percent over that period while the S&P 500 earned 7.1 percent. [More…]
Two Celebrities Charged With Unlawfully Touting Coin Offerings
The SEC’s orders found that Mayweather failed to disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc., and that Khaled failed to disclose a $50,000 payment from Centra Tech, which he touted on his social media accounts as a “Game changer.” Mayweather’s promotions included a message to his Twitter followers that Centra’s ICO “starts in a few hours. Get yours before they sell out, I got mine…”[More…]
The Whistleblowers by Tamar Frankel in Verdict
A whistleblower may face conflicted commitments and loyalties. As a good citizen, he or she is committed to following the law. Yet he or she is also committed to the workplace and to its leaders’ directives and success. The institutions and their leaders’ actions and directions may conflict with the whistleblower’s interpretation of the law. Unfortunately, such conflicts may not be unique. [more…]
Why don’t we trust whistleblowers? by Kelly Richmond Pope
In my TED Talk, I explore the dilemma faced by many whistleblowers; speak up and help the problem or speak up and be forever scrutinized. [More…]
