Products November 23, 2011

White Paper Discusses Risk in Alternative Investments

The Greenwich Roundtable released a white paper discussing how investors can manage complexity of alternative investments to improve their returns.
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The Greenwich Roundtable is a not-for-profit research organization comprised of institutional investors overseeing collectively $2.2 trillion in assets. The research paper analyzes the risks involved in hedge funds and private equity, and describes the best practices and due diligence steps that investors need to pursue to manage those risks.  The paper also explores the complexity of volatility, leverage, and liquidity and how these factors together can compound risk.   

“Complexity and volatility are the norm for investors, as today we seem to have a 100-year financial storm about every three years or so.  As a result, returns for the decades ahead are almost assuredly going to look much different,” said Steve McMenamin, executive director of The Greenwich Roundtable.  “Those investors who can manage volatility and understand the complexity embedded in their portfolios will continue to be the long-term winners.”

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Key insights described in the white paper include:

  • The cost of alternatives strategies is the complexity they add.  The benefit is the ability to source returns from a broader spectrum of opportunities.
  • Correlations matter, and they vary through time.  Investors must try to understand the changing nature of relationships across their portfolios.
  • Investors need to understand how each manager approaches leverage and evaluate the appropriateness of the amount and duration of that leverage.
  • Liquidity is dynamic.  It changes as markets change.  This calls for ongoing due diligence and manager monitoring, including stress tests and projections with ample wiggle room.

“Each investor must decide whether it is adequately prepared to invest competently in alternative investments,” said Rusty Olson, former director of pension investments for Eastman Kodak Company and editor of the paper. 

This is the sixth in a series of white papers on Best Practices in Alternative Investments published by The Greenwich Roundtable. Information about obtaining a copy is available at www.greenwichroundtable.org

Compliance November 23, 2011

DoL Recovers 401(k) Assets for Former Security Guards

The Department of Labor will recover more than $7 million for former employees of USProtect Corp., a defunct company that provided security services for federal buildings across the country. 
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The decision from the U.S. Bankruptcy Court for the District of Maryland resolves the Labor Department’s actions against the company related to violations of the McNamara O’Hara Service Contract Act and the Employee Retirement Income Security Act.  The settlement between the federal government and a bankruptcy trustee allows for a total recovery of $7,968,744, of which $6,951,977 was recovered for the employees’ wages and cash fringe benefits. The remaining $1,016,767 was recovered for the employees’ 401(k) accounts.  

Investigations were conducted by the department’s Wage and Hour Division and its Employee Benefits Security Administration when the company could not meet its payroll. Investigators found that the company failed to pay hundreds of employees for their last 2 1/2 weeks of work, and many employees were not paid the prevailing wage for their geographic areas or fringe benefits. The company also failed to remit employee salary deferral contributions to their 401(k) plan accounts.    

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USProtect Corp. was contracted to provide security services for the Social Security Administration, the U.S. Department of Justice, the U.S. Army, the U.S. Air Force, the U.S. Department of Homeland Security, the Court Services and Offender Supervision Agency for the District of Columbia, the Naval Facilities Engineering Command and the District of Columbia Superior Court. Contracts covered services provided in California, Delaware, the District of Columbia, Louisiana, Maryland, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Texas and the Virgin Islands.  

The McNamara-O'Hara Service Contract Act requires contractors and subcontractors performing on federal service contracts in excess of $2,500 to pay service employees no less than the wage rates and fringe benefits found prevailing in the locality for the classification of work that they perform.   

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