Deals & People August 3, 2012

Plaze to Retire After 30 Years at SEC

As deputy director of the Securities and Exchange Commission (SEC) Division of Investment Management, Robert E. Plaze most recently worked on money market funds.
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Plaze first joined the SEC in 1983 as an attorney in the Division of Investment Management, and has since served as special counsel, assistant director, associate director for regulatory policy and deputy director.

“Few people have had as great an impact shaping the regulatory landscape for the benefit of individual investors,” said SEC Chairman Mary L. Schapiro. “Bob’s keen intellect and passion for investor protection have been central to virtually every significant rule affecting mutual funds and investment advisers for more than a generation.”

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Norm Champ, director of the Division of Investment Management, added: “Bob has been instrumental in the creation of the regulatory regime for investment advisers and investment companies. He has had a long and distinguished career working on behalf of investors.”

Plaze has worked on rulemaking for money market funds and on implementing a Dodd-Frank Act requirement for hedge funds, as well as on numerous mutual fund governance practices—including fee tables in mutual fund prospectuses, standardized fund performance in advertisements, the adoption of compliance programs at fund investment advisers, and protecting pension plans and other investors from “pay-to-play” practices.

Plaze also was given the SEC’s Distinguished Services Award and, twice, the agency’s Law Policy Award. He is a graduate of Georgetown University and Georgetown University Law Center.

Plaze said: “It’s been an honor and privilege to work at the Commission. When I began, I expected to stay a few years, but I found that the issues were so engaging and the work so important that I remained here for nearly three decades.”

                                  

Data & Research August 2, 2012

Paper Explores Risk of Guaranteed Investment Products

Researchers in Morningstar’s Investment Management division released a paper that explores the true risk of guaranteed investment products and how they should be modeled.
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Guaranteed investment products, including stable value funds, guaranteed investment contracts (GICs), and synthetic GICs, are offered in many defined contribution plans in the U.S. According to “Estimating Credit Risk and Illiquidity Risk in Guaranteed Investment Products,” they appear to have low risk, but since the returns are based on rules and formulas rather than marked to market it can be hard to tell.   

As an example, the paper notes that the coupon payments associated with Lehman Brothers-issued structured products had no volatility until Lehman’s bankruptcy in 2008.  

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Traditional methods for comparing products and constructing optimal portfolios—in other words, looking at return and risk (standard deviation)—underestimate the risk of guaranteed products and lead to over-allocation. The researchers estimate that the true standard deviation for guaranteed products should generally be about one to five percentage points higher depending on the product structure, liquidity terms, and financial strength of the insurance company issuer. These higher standard deviations make the risk profile of many guaranteed products more similar to domestic bonds than cash.   

The paper can be downloaded here. 
 

 

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