The Markets November 28, 2007

State Street Launches Private Equity Index

State Street Corporation has launched the State Street Private Equity Index.
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The index is based on the latest quarterly statistics from State Street Investment Analytics’ Private Edge Group, which provides detailed analyses of customers’ private equity portfolios through a web-enabled environment.

Comprised of data including more than 1,300 private equity partnerships with a total fund size in excess of $1.1 trillion, the State Street Private Equity Index will allow private equity investors to evaluate their performance against their peers across a broad and representative sample of investments, according to a press release.

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However, the firm says that, unlike other indices, the State Street Private Equity Index does not rely on voluntary reporting of cash flows from general partners in order to calculate returns. As a result, the firm says that the Index provides an accurate representation of private equity holdings across all funds, without any reporting bias.

The State Street Private Equity Index includes data derived from the client base of The Private Edge Group covering public and private pensions, endowments and foundations, representing more than 4,000 commitments totaling over $150 billion.

State Street Investment Analytics (SSIA) services are provided through offices located around the world, including Alameda, Amsterdam, Boston, Dublin, Edinburgh, Frankfurt, Hong Kong, London, Luxemburg, New York, Paris, Sydney, Toronto and Zurich. SSIA calculates performance for over 800 clients globally on asset volumes exceeding $4.5 trillion, providing private equity performance and analytics services through The Private Edge Group since 1994.

Compliance November 28, 2007

Supreme Court Considers Whether Trusts can Deduct Fees for Investment Advice

A case before the Supreme Court questions whether fees for investment advice incurred by a trust are deductible under an Internal Revenue Code provision governing costs paid in connection with the administration of a trust that "would not have been incurred if the property were not held by a trust or estate."
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According to Law.com, much of the argument heard by the court concerned the difference between advice and fees incurred by fiduciaries versus individual investors. Chief Justice John Roberts brought up the idea of breaking up the costs for investment advice into those for “general stock picking advice,” and those for “specialized fiduciary advice,” and only providing an exception for the latter, the news report said.

Peter J. Rubin, counsel for the petitioner, said “all trust investment fees are distinctive, that what renders them distinctive and renders them fully deductible under the statute is that they are incurred as a result of distinctive fiduciary obligations,” according to Law.com.

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Justice David Souter made the argument that the consequences of poor investment management are different for trustees than for individual investors. “If the individual investor does a very poor job of managing his investments, all he can ultimately do is cry about it,” Souter said, according to the news report. “But if the trustee does a very poor job, the trustee is going to get sued. So … when the trustee asks for an investment adviser’s advice, the trustee is addressing an issue that the individual does not have.”

Assistant to the Solicitor General Eric D. Miller, who represented the Commissioner of Internal Revenue, tried to argue that the statutory language regarding fees that “would not have been incurred if the property were not held by a trust or estate” means fees that “could not” have been incurred by an individual investor, but the argument was batted down by Justice Antonin Scalia. “‘[W]ould’ just does not mean ‘could,'” Scalia said. “I mean, would have, could have, should have … they’re different words.”

According to the news report, Justice Stephen Breyer noted that the legislative history of the statute shines “precisely no light whatsoever” on Congress’ intent.

The case is Knight v. Commissioner of Internal Revenue, 02-1286.

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