Deals & People December 17, 2009

Morgan Stanley Launches Emerging Manager Program

Morgan Stanley Investment Management (MSIM) has announced the launch of the Morgan Stanley Emerging Manager Program (EM Program).

Reported by

The EM Program seeks to identify and provide capital, as well as strategic advice and infrastructure solutions, to emerging asset managers (emerging managers), with a specific emphasis on minority and women-owned asset managers, the announcement said. The program will be headed by Morgan Stanley veteran Carla A. Harris.

The new EM Program, according to the announcement, will partner with long-only (equity and fixed income) and alternative minority and women-owned asset managers to:

  • increase the number of emerging managers of scale and heighten the emerging manager opportunity for growth and success; and
  • introduce plan sponsors and other institutional investors to a larger, more diversified pool of Emerging Managers and the means to participate in the success of emerging talent.

The EM Program will be a part of Alternative Investment Partners (AIP), a division of MSIM that manages portfolios of private equity, hedge fund, and real estate investments on behalf of institutional and high-net-worth clients. The manager participants in the EM Program will be overseen by an Investment Committee comprising representatives and senior management from across Morgan Stanley and MSIM.

“We believe that emerging managers will present attractive opportunities over the next few years, particularly as public and corporate pension plans seek to diversify their asset management providers and employees look for diverse asset managers among the choices on their employer defined contribution platforms. This program will increase the opportunity for plan sponsors and other institutional investors to get exposure to a larger pool of untapped talent and to place assets with a diverse group of managers,” said Harris in the announcement.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Compliance December 17, 2009

SEC Tightens Adviser Custody Rules

The Securities and Exchange Commission (SEC) has adopted Bernard Madoff-inspired rules that make it more difficult for investment advisers to custody their clients’ assets.

Reported by

As amended yesterday, the SEC’s custody rule will require advisers who do custody their clients’ asset to use independent public accountants as third-party monitors. Depending on the investment adviser’s custody arrangement, the SEC said the rules would also require the adviser to be subject to a surprise exam and custody controls review that were generally not required under existing rules (see “SEC Proposes Tighter Adviser Custody Rules”).

The SEC noted that most investment advisers do not maintain physical custody of their clients’ assets and rather hold assets with a qualified third-party custodian. However, the advisers who do and take advantage of the situation have been all over the news in the past year; the SEC has brought a series of enforcement cases against advisers, such as Madoff, who misused their access to clients’ assets.

Those advisers often covered up the misuse by distributing false account statements to their clients reflecting assets that didn’t really exist. The SEC said the new rules are intended to help prevent that from happening and promote the independent custody of assets.

“The Madoff Ponzi scheme and other frauds have caused investors to question whether their assets are safe when they entrust them to an investment adviser,” SEC Chairman Mary L. Schapiro said in a statement. “These new rules will apply additional safeguards where the safeguards are needed most—that is, where the risk of fraud is heightened by the degree of control the adviser has over the client’s assets.”

In addition to requiring audits, the new rules will require advisers to hedge funds and other private funds that comply with the custody rule by obtaining an audit of the fund and delivering the fund’s financial statements to fund investors, according to the SEC. The rule will require that the auditor of such a private fund be registered with and subject to regular inspection by the Public Company Accounting Oversight Board (PCAOB).

The  rules also require that the adviser “reasonably believe that the client’s custodian delivers the account statements directly to the client, to provide greater assurance of the integrity of these account statements,” the SEC said. Clients will also be able to compare the account statements of the adviser and the custodian to determine that the account transactions are appropriate. 

«