Compliance September 25, 2023

Private Fund Adviser Fined $1.6M for Duty of Care Violations

The infrastructure fund allegedly did not disclose conflicts of interest and took actions without regard for their impact on investors.

Reported by


The Securities and Exchange Commission ordered American Infrastructure Funds LLC, a private fund adviser specializing in infrastructure, to pay about $1.6 million to settle fiduciary breach charges related to conflicts of interest and fees. The total penalty included $1.2 million in fines and about $445,000 in disgorgement to affected investors.

The SEC alleged that AIM (the ‘M’ stands for MLP, or master limited partnership) violated the Investment Advisers Act of 1940 by not disclosing its conflicts of interest, fee structures and inter-fund loans properly to investors. The SEC also found that the firm violated duty of care obligations by not considering its clients’ interests when transferring funds or adequately informing them of those transfers.

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AIM agreed to a cease-and-desist order, censure and the payment, without admitting or denying the SEC’s findings.

Conflicted Fee Structure

According to the SEC order, AIM managed and advised affiliate funds, which paid management fees to AIM. The fund adviser also collected monitoring fees from the companies in the funds’ portfolios for advisory and consulting services. One such subsidiary fund, GEN I Funds, invested in a private waste management company. AIM collected monitoring fees from that company, a portion of which was returned to investors in GEN I as an offset to their fund management fees.

AIM had a 10-year agreement with the waste company for advisory services that included a provision that the waste company would pay an accelerated $4.5 million fee if either party ended the relationship early. In 2019, AIM sold its stake in the company, terminated the agreement and collected the accelerated fee.

This action represented a conflict, according to the SEC, because AIM was advising GEN I, a fund with its own stake in the company, when it had an incentive to sell its stake in the same company and collect a large fee at the expense of GEN I’s ownership interests. AIM never disclosed this conflict to the investors of GEN I.

The SEC order also found “that AIM violated its duty of care by failing to consider whether the fee acceleration was in its clients’ best interest.”

Locking Up Investor Funds

From 2010 to 2015, the GEN I fund also invested $70 million in a toll bridge company. AIM, still the adviser to GEN I, transferred the bridge company assets to NABF, a new private fund created and managed by AIM, according to the order. In exchange for this transfer, GEN I received an ownership stake in NABF.

However, the transfer carried with it a 12-year agreement that locked up the GEN I funds in the bridge company. The SEC wrote that the agreement “locked up investor money for at least an additional decade without obtaining investor consent, without providing existing investors an option to exit, and without disclosing AIM’s conflicts of interest in the transaction.”

Improper Loan Disclosure

Lastly, the SEC found that another fund advised by AIM, GEN II Funds, incurred $1.3 million in expenses related to the acquisition of post office properties without actually acquiring the property. In 2018, AIM created a postal fund dedicated to postal properties. Since the new fund was taking over the post office portfolio, AIM reimbursed GEN II Funds the $1.3 million.

Since GEN II had taken those costs on behalf of the postal fund before being reimbursed, that was effectively a loan from GEN II to the postal fund, the SEC found. AIM never disclosed this loan to the investors of GEN II or considered if the loan was in the client’s best interest. This was also an undisclosed conflict, because AIM took these actions in the interest of its entire portfolio, without considering the effect it would have on the investors in the GEN II Fund, according to the regulator.

Data & Research September 25, 2023

US Retirement Assets Rise for 4th Straight Quarter Through Q2

Defined contribution plans grew at a rate of 12% to $10.2 trillion, according to ICI, even as separate Escalent research shows retirement plan participants lack know-how to manage retirement savings.

Reported by


Total U.S. retirement assets marked their fourth consecutive quarter of growth through the year’s second quarter, according to the most recent data from the Investment Company Institute.

Defined contribution savings rose 12% over the last four quarters from Q2 2022 through the same period this year, hitting $10.2 trillion, according to data released September 14. That figure is still lower than the $11.2 trillion in retirement assets at the end of 2021, the largest since the ICI began tracking in 2000.

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Individual retirement accounts grew even more through Q2, up 7% to $13 trillion, also getting closer to a $14.5 trillion record set at the end of 2021, according to the data.

Meanwhile, government defined benefit plans rose 5% to $8 trillion, annuity reserves rose 9% to $2.3 trillion and private sector DB plans grew 5% to $3.2 trillion in the period.

Of the assets held in DC plans, according to ICI, holdings broke down as follows:

  • 401(k) plans: $7.2 trillion
  • Private sector DC plans: $580 billion
  • 403(b) plans: $1.2 trillion
  • 457 government plans: $420 billion
  • Federal Employees’ Retirement System’s Thrift Savings Plan: $794 billion

Within those assets, mutual funds managed $4.5 trillion, or 62%. Equity funds were the most common type of holdings at $2.6 trillion, followed by $1.3 trillion in hybrid funds, which include target-date funds, ICI reported.

Money Management

The results of a growing retirement pool come even as a separate research report reiterated consistent findings that participants lack the proper education and financial wellness tools to manage their accounts. Four out of 10 participants (40%) admit to estimating retirement savings goals off the top of their head, according to research released September 20 from a Cogent Syndicated report from Escalent.

The survey, which encompassed 4,000 DC plan participants with at least $5,000 saved in an employer’s plan, found that popular methods for calculating retirement savings are online calculators (30%), detailed plans with financial advisers (25%) and do-it-yourself customized spreadsheets (22%).

The research, however, is not leading to realistic goals for what participants will need in retirement, the researchers found.

“It’s both the amount and the methods being used to calculate retirement savings goals across all cohorts that’s concerning,” says Sonia Davis, senior product director at Escalent and lead author of the report. “[Retirement plan] providers must work diligently to promote their online retirement planning tools and educational offerings to help participants better articulate their savings goals and ensure they are on track to achieving them.”

Goals vs. Reality

The overall mean retirement savings goal for the participants in the survey was $946,000, ranging from a low of $498,000 among Generation Z participants (born 1997 through 2012) to a high of $1.2 million among Baby Boomers (born 1946 through 1964).

“Estimates for ESRPs [Employee Sponsored Retirement Plans], IRAs, brokerage accounts and other vehicles are markedly higher among 2nd-wave Boomers versus Gen Zers and Gen Xers, underscoring the opportunity to educate younger cohorts on how much is required to live comfortably in retirement,” Davis says.

Long-term retirement assets may continue to be bolstered by returns from higher interest rates through the year, with the Federal Reserve last week announcing it would hold the federal funds rate in the range of 5.25% to 5.5%, while signaling another potential hike this year to continue combatting inflation.

The Fed also noted that “economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.”

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