Our Library of Articles: "Insider" Commentary on Controversial Money Manager and Pension Issues
The most exciting aspect of Benchmark's first year operations has been its use of the internet to efficiently distribute on a monthly basis our original, groundbreaking commentary, the Benchmark "alerts," worldwide. Thousands of visitors affiliated with international governmental, educational and business organizations have read the "alerts," according to "webtrends," the program we utilize to track visitors. We have never advertised our website and our content is directed primarily toward institutional investors. Nevertheless, almost half of the "alerts" have been reprinted in pension and other financial publications; also other websites aimed at individual investors have "linked" to us. In our first year, articles about the website have even appeared in German and Australian publications. Our developmental costs related to the website and monthly articles have been minimal-a fraction of even our rapidly declining long distance telephone bills. We believe that the internet may still radically alter the economics of many companies, such as ours, that never intended to become involved with the net and are only moving forward conservatively with an internet strategy. In the year to come we will redesign the site to be both clearer and more far-reaching.
Articles in our online "Library of Articles" include all of this year's articles and a select number of articles written prior to formation of the company. As we look back on these articles it becomes apparent that they have tended to focus on certain subjects and reflect some fundamental beliefs.
Our first articles, dating back to 1989, dealt with the issue of minority population demographics in the United States and minority participation in the money management and securities industry. Our prediction in "The Future of Minority Participation in Investment Management," December 1989, was that as the minority population grew in the future (particularly Asians and Hispanics), pressure to include minorities in the management of retirement assets would increase and focused marketing to these groups would grow in importance. We stood by that prediction, even as affirmative action programs were largely eliminated throughout the 1990s. The "browning of America" will continue over the next twenty years and good business, not statutes, will compel inclusion of people of color. In "Take the Easy Road to Community Reinvestment Act Compliance," August, 1993, we discussed the requirements of the CRA and explained that brokerage could be utilized by banks to meet their obligations under that statute.
Our next series of articles dealt with the debate regarding "soft dollars" in the mid-1990s, as Goldman, Sachs and Morgan Stanley lobbied Congress and the SEC to eliminate soft dollaring and as Chairman Levitt at the SEC made disapproving noises about the practice. We never could understand how such trading firms which distributed proprietary research to promote securities held in their inventory could argue independent third party research was somehow more harmful to investors. However, in our July, 1997, letter to Chairman Levitt of the SEC we expressed our concern that the Commission should examine the role soft dollar brokers played in promoting abuses. We observed in our letter that while the SEC had authority to go after brokers when abuses occurred, under an "aiding and abetting" theory, we were unaware of any case where the Commission had. Subsequently the SEC undertook its first ever "sweep" inspection of over fifty soft dollar brokers and examined how they marketed soft dollar trading to money managers. When the Commission eventually adopted a new soft dollar rule mandating more disclosure, our article analyzing the rule concluded that while it highlighted disclosure of independent third party research, it would do little to discourage the use of soft dollars by money managers. Today it seems investors are far more concerned with conflicts of interest related to research provided by investment banking affiliates than soft dollaring. In a weird turn of events, the proprietary research firms who once opposed soft dollaring are now on the defensive for their conflict-ridden research and these firms are now offering soft dollar services. In the coming year look for us to do a new article on new SEC disclosure standards and the impact upon Wall Street research providers.
In 1996, we also wrote a series of groundbreaking articles on the pension consulting business. We noted that consultants, unlike brokers and money managers, were generally not subject to regulation. It seemed ironic that unregulated consultants had the power to influence their pension clients' choice of both managers and brokers. Lack of standards, poorly-defined roles and undisclosed conflicts of interest were all problems facing the consulting industry. Our April, 1996 article, "Consultants With Affiliated Broker-Dealers: How "Independent" Is Their Advice?" caused many plan sponsors to begin to ask probing questions of their consultants. "Marketing: Should Consultants Be Your Focus?" June 1995, was unusual in that it was directed to money managers and discussed reasons why managers should not place undue importance upon their relations with consultants. For a variety of reasons, including consultant bias toward managers that "pay to play," we suggested managers should continue to market directly to pensions. Recently we revisited the consulting business in September, 2000, with "A Proposal For Managing Pension Consultants" which provided pensions with a simple questionnaire to use in hiring and managing their consultants.
Our series dealing with how money managers and pensions conceal illegalities was our most hard-hitting. Some of our readers felt these articles were too harsh. We disagreed with the National Association of Securities Dealers that our statements related to widespread illegal pension fund and money manager conduct were "exaggerated and unwarranted." In "Hidden Crimes; Too Many Secrets: How Money Managers Hide Illegalities From Investors," August 2000, we stated that today money managers, assisted by regulators, are capable of concealing most information related to their illegal or unethical activities. Most recently, in "No Freedom of Information When It Comes To Money Managers," we disagree with the SEC that the results of money manager inspections should be protected from disclosure under the Freedom of Information Act. In these articles we described the "two-tier" disclosure scheme under the federal securities laws and concluded all information managers are required to keep for review by regulators should be available to investors. In our opinion, a government agency charged with the "protection of investors" should not have discretion to determine what information investors get to see and when. If information is being collected for our benefit, we should be able to see it.
In a series of related articles dealing specifically with trading for personal profit by money managers, we disagree with the Investment Company Institute, the Association for Investment Management and Research and the SEC that personal trading abuses are rare. In our opinion, such abuses are commonplace and pose substantial, quantifiable harm to investors. Ironically this year saw the largest personal trading case in history involving over fifty persons at a single mutual fund complex. This case received almost no press attention. In our "Response to a Request For Public Commentary on the SEC's Proposed Amendments to the Rules Governing Personal Trading By Money Managers, Letter to Chairman Levitt," July, 1998, we proposed a comprehensive approach to ending personal trading abuses. Our proposal addressed certain conflicts of interest permitted under the Investment Company Act of 1940 that contribute to the abuses in this area. We weren't surprised when the Commission neglected to adopt our approach, opting instead to simply remind mutual fund directors chosen by money managers that they had a duty to monitor personal trading by those managers.
Venture capitalists may be "socially irresponsible investors" is the message we had for public pension funds in our first "alert." The article included a great deal of new information about business practices of venture capitalists. We recommended that pensions look beyond the spectacular returns venture managers quote and review the business practices of these managers, as they would any public company or traditional asset manager.
In two articles entitled "The Brokerage Battlefield" and "The Brokerage Battlefield Revisited," the first given as a speech at the Philadelphia Stock Exchange for the National Council on Teacher Retirement in 1997 and the second as the October, 2000 "alert," we sought to provide insight to pensions regarding brokerage issues related to institutional asset management. Our intent was to give fiduciaries enough information about brokerage matters such that they would not be misled by managers, brokers or consultants who may have hidden agendas.
And finally, we did two articles concerning the risks related to privatization of social security in which we sought to remind our readers of the many important benefits social security provides and the risks involved in letting the private sector get its hands on what amounts to the final source of retirement security for many retirees.
Most articles in our "Library of Articles," may be viewed in full online.
In the coming year we will complete the task of putting the full text of all past articles online. We promise to continue to write articles that will be original, controversial and uncompromised by the business interests of Wall Street powerhouses. Our reports are written by "insiders" who know what goes on beyond the smoke and mirrors of the money management, investment banking and brokerage businesses, including the legal backdrop. As always, your comments and suggestions are appreciated.
Setting Standards For The Investment Management Industry
