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News and Press Releases |
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HEADLINE:
Lifting The Lid: When Mutual Funds Are Not So Mutual
By: Mark McSherry - Reuters
Forbes.com. January 22, 2004
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EXCERPT: When much of an industry is beset by a scandal involving allegations investors have been cheated on a massive scale, you might expect shareholders to be storming annual meetings to get at the throats of those who have been running the show. But don't expect that to happen in the $7 trillion U.S. mutual fund business -- because in most cases there are no such meetings. "If you want to be a watchdog, where do you go to bark?," complained investor advocate Max Rottersman of fundexpenses.com. It is a strange aspect of an industry in which 91 million Americans are invested that there is no public meeting at which they can voice their opinions or exercise investor rights. When mainstream publicly-traded companies get embroiled in scandals or their performance deteriorates, shareholders at least get to raise resolutions, lobby the board and sound off at their annual meetings. Indeed, if shareholders in a less popular type of mutual fund -- a closed end fund -- don't like what their directors are doing with their investments, they can go to an annual meeting and make their views known in no uncertain terms. They can apply pressure for change -- especially in Britain, where closed end funds are known as investment trust companies and have faced groups of angry shareholders demanding answers and disclosure. Closed end funds have annual meetings because they are formed as exchange-traded public companies with shareholders. As a result, they must meet stock market listing requirements.
However, most U.S. mutual funds have a different structure. The vast majority are "open end" funds in which investors do not own exchange-traded shares in a listed investment company that is obliged to hold an annual meeting. Instead, open end mutual fund "shares" are in reality a proportion of a fund's net assets, without the kind of rights a shareholder in an exchange-traded company can count on. "The person who owns a mutual fund share has the worst of both worlds," said shareholder activist Robert Monks, deputy chairman of Hermes Focus Asset Management. "He does not have even the theoretical rights of a shareholder and his beneficiary position has been diluted to such an extent he is virtually without rights in that regard as well," Monks said. Open end mutual fund investors are consulted through the proxy process, said Jeff Keil, vice president of global fiduciary review at fund research firm Lipper Inc., a unit of Reuters Group Plc. Keil said open end mutual fund investors currently have no legal right to raise issues for fund meetings. However, like many others in the industry, Keil questioned whether there would be enough investor interest in mutual fund annual meetings to justify the cost. Still, the same could be argued for any public company annual meeting.
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