Does the change in portfolio manager count as material non public informaiton? According to CFAI, change is management count as material non public informaiton, how about star PM who is responsible for the super return? Any comments? Thanks
What are you talking about? That refers to change in management at the under lying corporations. example: GE is going to replace it’s CEO and COO. Change’s of that significance will no doubt affect GE’s stock price. Certainly, if a portfolio manager is replaced or leaves you would want to make note of it and do your due diligence on the fund to see if you want to leave… but its not going to move markets or affect the value of the underlying portfolio holdings.
FUNancialAnalyst Wrote: >its not going to move markets or > affect the value of the underlying portfolio > holdings. That’s the key!
There was a multiple choice where this situation occurred and for some reason its stuck in my head that a change in the PM or fund manager is not non-public information. Would be great if someone would confirm this.
So, based on what FUNancialAnalyst has said, if we know that once the PM leave the fund will decline 10%, as long as it is not related to specific company, we can act on this informaiton even though it is material
sparty419 Wrote: ------------------------------------------------------- > There was a multiple choice where this situation > occurred and for some reason its stuck in my head > that a change in the PM or fund manager is not > non-public information. > > Would be great if someone would confirm this. I remember this question (think I saw it in LII). IIRC it mentioned that the resignation of the manager was likely to lead to a withdrawal of funds so therefore it was MNP. If it didn’t specify that it would lead to clients withdrawing from the fund, then it was not material.
Mutual fund will trade at NAV no matter what the PM does. Edit: It would have to be a huge exodus with illiquid stocks to affect the other shareholders of the fund.
I agree with FUNancial and mwvt9…it seems that there is confusion over the context in which this question is asked. Like mwvt9, the fund’s underlying securities trade at NAV, no matter the PM. The fund NAV, however, may be affected by the outflows of news over a PM change. IMO, this does not relate to integrity of capital markets, but only a certain mutual fund’s pricing (not the underlying securities). If, however, a mutual fund manager is publicly traded (let’s say a Goldman Asset Management), and there is news that he will start his own hedge fund, leading to outflows of assets, and affecting Goldman’s stock price, then I think that’s non-public material information if acted upon before public dissemination. Agreed?
Also, i think if large institutional investors wanted to exit a manager, selling of securities is not necessary. It seems possible that the portfolio can be transferred intact, especially if the custodial manager is the same.
I agree with wishiwererich, this is where I am coming from when inital raise the question. Ethics has may grey areas that is difficult to judge correctly 100% all the time. We may just have to base on the information presented at the exam. wishiwererich Wrote: ------------------------------------------------------- > I agree with FUNancial and mwvt9…it seems that > there is confusion over the context in which this > question is asked. > > Like mwvt9, the fund’s underlying securities trade > at NAV, no matter the PM. The fund NAV, however, > may be affected by the outflows of news over a PM > change. IMO, this does not relate to integrity of > capital markets, but only a certain mutual fund’s > pricing (not the underlying securities). > > If, however, a mutual fund manager is publicly > traded (let’s say a Goldman Asset Management), and > there is news that he will start his own hedge > fund, leading to outflows of assets, and affecting > Goldman’s stock price, then I think that’s > non-public material information if acted upon > before public dissemination. > > Agreed?
I think you guys are kind of missing the boat here. You have a portfolio manager. He is managing assets. we don’t know or care anything about what those assets are. The portfolio manager is managing $$$ on behalf of HIS clients. If he decides to leave there will likely be some chnage in performance of those managed funds going forward . If he’s great. maybe the person they replace him with will suck. If he’s losing monye, maybe there will be a star who replaces him. This chnage might result in fund inflows or outflows, and either way it might have an impact on the funds ability to execute its strategy. Thats why it could be material.
this is a ridiculous question.
Sorry Super, but you’re wrong here. Material information is something that can _directly_ impact the price of a specific security. The annoucement of a PM leaving will not directly impact the price of the underlying securities nor the Fund’s NAV, which is solely dependent on the price of the underlying securities. It is possible that inflows or outflows out of the fund could have some effect on performance, but in order to be material, the information has to have a direct, meaningful, and knowable impact. Any effect from inflows or outflows would be ambiguous - neither predictable nor immediate. Think about why this rule is in place - to keep people from benefiting from insider knowledge. Even if you know a PM change is about to occur and no one else does, there is no way to take advantage of this knowledge to ensure a profit (or protect against a loss). Sparty is correct in that there was a question somewhere with this exact situation, although off of the top of my head I’m not certain where. Edit: To elaborate, any effect on performance from inflows/outflows will be because the manager is forced to trade at unfavorable prices to deal with the cash flows, which again is nothing that directly impacts the price of any security.
I want to explore farther what Super 1 just said and I believe that’s theKing’s question in the 1st place: Assume that… You own 100 share of ABC actively managed mutual fund (most likely an open-end fund). You just learnt from an insider that its star PM will resign in several weeks but the resignation won’t go public till next week. If you sell your shares now, do you violate the “material non-public info”? I think it is a violation (but only 80% sure) because: --Star PM resignation is material. --Info is non-public (especially other ABC fund shareholders don’t have the info) --It is expected to have a sizable redemption when it goes public next week. PM will have to liquidate fund holdings in unfavorable situation and prices to meet the cash requirement for redemption. In comparison, you are able to redem fund shares in a relatively favorable price right now. Anyone has experience with fund compliance group to comment?
I do because I actually work with mutual funds and speak with fund managers on a fairly consistent basis. We have known about manager departures ahead of the official announcement in more than one case but its never been a compliance issue (and believe me, my firm is uptight about these things) because its pretty much impossible for me to benefit from this knowledge. I suppose if I owned the product I could sell it ahead of time but there may or may not be any benefit to doing so. Again, it is possible that the fund will experience negative performance effects from cash outflows but this isn’t really measurable or knowable prior to its occurance and this tends to be something that happens over a longer period of time (since people will take time to consider the effect of the change, may not learn about it right away, etc.) I’m not saying it isn’t possible but in the vast majority of cases, a change in PMs has only a small immediate effect on redemptions and I think the ambiguity of the effect on performance is what keeps it from being material information. This may be less true for things like seperate accounts, etc. but those aren’t publicly traded securities. Half of the time people don’t even pay enough attention to realize that a mutual fund manager has left. I wish I had my SoPH with me today because I’m almost certain they had a question on this.
i can’t believe anyone is humoring this question. the answer is no, a PM leaving a fund is not material non-public information.
managed to find the question: Qbank 2009 LII Jim Kent is an individual investment advisor in San Francisco with 300 clients. Kent uses open-ended mutual funds to implement his investment policy. For most of his clients, Kent has used the Baker fund, a small company growth fund based in Boston, for a portion of their portfolio. As a result he has become very friendly with Keith Dunston, the manager of the fund, whom Kent feels is mainly responsible for Baker’s performance. One day Dunston calls Kent and tells him that he will be leaving the fund in four weeks and moving to San Francisco to work for a different money management company. Dunston is seeking suggestions on housing in the area. Baker has not yet announced Dunston’s departure. Kent immediately finds a fund that is a suitable replacement for the Baker fund, and over the next two days he calls his 30 clients with the largest dollar investments in the funds and tells them he feels they should switch their holdings. Baker feels the remaining clients’ positions are small enough to wait for their annual review to switch funds. Kent has: A) violated the Standards by not dealing fairly with clients but has not violated the Standards regarding material nonpublic information. B) violated the Standards by not dealing fairly with clients and regarding material nonpublic information. C) violated the Standards regarding nonpublic information but has not violated the Standards in failing to deal fairly with clients. D) not violated the Standards. The correct answer is A Kent question: ID #39247 Kent must treat all clients fairly in acting on the information, regardless of the size of the investment. The information concerning the fund manager’s departure is not material nonpublic information because its release would have no effect on individual security prices. AF’s dicussion on the matter is here: http://www.analystforum.com/phorums/read.php?11,626748,626825#msg-626825 It appears to me that if this was a closed-end fund, then the issue with MNP would arise. Like others have said, as the manager leaving has no impact on the NAV (if it was an open-end fund), there is no case for using MNP
The way I am thinking about it: if you are a PM of a fund that churns out 50% returns every year, and then all of a sudden you are planning to retire and you haven’t told anyone, but someone does find out about it, its probably not a non-public material information. Probably because you have no direct impact on the price of securities or the NAV of the fund for that matter…just because you are managing funds doesn’t mean you are having any say in the price of securities…unless of course, there is some non-public information that has revealed you are running a ponzi scheme or manipulating securities. What say?