Compliance October 24, 2008

DoL Sues California RIA for Undisclosed Incentive Receipt

Zenith Capital, a registered investment advisory (RIA) firm, allegedly collected incentive fees from a hedge fund in exchange for investing retirement plan assets in the fund.
Reported by

U.S. Department of Labor (DoL) has sued the Santa Rosa, California-based firm and its executives for investing the assets of 13 retirement plan clients in the hedge fund Global Money Management LP and receiving undisclosed incentive fees from the hedge fund’s sponsor and manager.

According to a news release, the DoL lawsuit alleges that Zenith Capital and executives Rick Lane Tasker, Michael Gregory Smith, and Martel Jed Cooper violated their fiduciary obligations under the Employee Retirement Income Security Act (ERISA). The defendants allegedly made investment decisions for their ERISA plan clients.

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From April 1999 to September 2003, the defendants caused the plans to invest in Global Money Management and received undisclosed incentive fees from LF Global Investments LLC, the general partner and manager of Global Money Management, the government charged. In addition to paying Zenith incentive fees not disclosed to the 13 ERISA plan clients, LF Global held an ownership interest in Zenith.

In 2004, Zenith Capital LLC was an RIA with 1,214 clients and approximately $538 million in assets under management.

“We will vigorously pursue investment advisers who try to line their own pockets by illegally steering pension investments,’ said Bradford P. Campbell, assistant secretary for the DoL’s Employee Benefits Security Administration (EBSA), in the news release. “Fiduciaries must invest solely in the interests of the workers to whom these funds ultimately belong.”

The Markets October 23, 2008

Plan Sponsors Experience Significant Losses in Third Quarter

Most U.S. institutional investment plan sponsors reported a fourth consecutive quarter of negative results for the period ending September 30, according to data in the Northern Trust Universe.
Reported by

“All plan types suffered significantly from volatile and declining markets in the third quarter, with Corporate plans performing especially poorly relative to their assigned benchmarks,” said William Frieske, performance consultant, Northern Trust Investment Risk & Analytical Services, in a press release.

Corporate plans posted a median return of -8.8% for the third quarter, while Public Fund and Foundation & Endowment plans reported median returns of -9.0% and -8.5%, respectively. Corporate pension plans had the lowest one-year performance of all three segments, with a median return of -15.5%, compared with -14.8% for public funds and -13.2% for foundation and endowment plans.

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“In addition to extreme market volatility, plans in all segments were hampered by the underperformance of fixed income programs,” Frieske said in the release. “The median return for Total Fixed Income Programs in the Northern Trust Universe was -2.8% in the third quarter, compared to a -0.5% return for the Lehman Aggregate Bond Index. Two primary factors—duration and credit exposure—were responsible for fixed-income program underperformance relative to the bond market index. As a result, Corporate pension plans lagged their assigned performance benchmarks by the widest margin in at least a decade.’

Three- and five-year returns remain positive, Northern Trust said.

The Northern Trust Universe represents more than 300 institutional investment plans, with a combined asset value of approximately $660 billion, which subscribe to Northern Trust performance measurement services.

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