Administration January 3, 2005

JP Morgan to Shed Private Equity Arm

March 1, 2005 (PLANSPONSOR.com) - JP Morgan will shed its private equity arm next year, according to sources quoted by the Wall Street Journal.
Reported by

Also confirmed by Reuters, it seems that the bank will spin off JP Morgan Partners LLC when it completes investment of its current $6.5 billion Global Fund. However, the bank plans to keep the smaller private equity firm that was previously part of Bank One Corp. Morgan was expected to spin off the unit – known as One Equity Partners – but now plans to hold onto it.

The relationship  will continue to exist, Reuters is reporting. The bank has stated that it will invest up to $1 billion in a new fund that the independent firm plans to raise after the Global Fund is completely invested. Jeffrey Walker, the head of JP Morgan Partners, will continue to run the group, according to the Journal.

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JP Morgan Partners currently has $13 billion in capital under management, and has a stake in 767 firms. About 60% of the Global Fund has been invested to date. The new fund, however, will be renamed to not include the Morgan name.

This move signals a victory for independent private equity firms, according to the Journal. Firms such as Blackstone Group and Kohlberg Kravis Roberts & Co have long yearned for the banks to drop their private equity arms. Because they give Wall Street hundreds of millions in transaction fees a year, they do not hesitate to let it be known that they do not like competition from the very banks they give business to, according to the Journal.

“When banks like J.P. Morgan are competing with us, it makes it more difficult to work with them on financing and merger advice,” William Price, one of the three founding partners of Texas Pacific Group said in Davos, Switzerland, several weeks ago, according to the Journal.

Administration January 2, 2005

Pax Admits Market Timing Problem

February 1, 2005 (PLANSPONSOR.com) - A prominent socially responsible investing (SRI) mutual fund family recently acknowledged that one of its funds was hit by market timers.
Reported by

Pax World funds Chairman Laurence Shadek and President Thomas Grant said an internal investigation in response to Securities and Exchange Commission (SEC) inquiries found that Pax World hadn’t kept investors from market timing its High Yield Fund during 2003, the Chicago Tribune reported.


Grant maintained during a Tribune interview that the Pax World funds issue was different than those affecting a number of other fund families caught up in the mutual fund trading scandal because Pax did not solicit the business in exchange for large investments from the market timers.

Although critics say the market-timing transactions raise expenses for long-term investors, a Pax shareholder letter from Shadek and Grant said the activity in the Pax World fund did not incur significant costs. “While we regret this situation, we believe that our shareholders did not suffer any material losses due to this activity,” the letter said.

Some funds linked to market timing and late trading have seen large shareholder pullouts, but Grant said the fund has seen no significant redemptions since the market timing was disclosed.

Market timers were able to park and switch money from other Pax funds by taking advantage of Pax rules allowing shareowners to shift assets among its funds without incurring the redemption fee intended to prevent market timing by making it prohibitively expensive, according to the company. Pax is in the process of restricting these “round trips” within its funds to once every 120 days.

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“The difficulty in discovering and stopping this form of activity resulted, we believe, from a combination of our outside vendors’ systems limitations and a failure on our part to promptly recognize the significance of what was occurring,” the shareholder letter said.

The issue came to light in a call from the SEC Division of Investment Management alerting Pax to heavy trading trends in the fund. The SEC asked Pax to investigate the matter and provide a written explanation.


Shadek said he is confident that Pax will be able to put this unfortunate development behind it. “We’ve had no market timer trading, as far as we can tell, for over a year,” Shadek told SRI.com. “We believe, after our own internal investigation, that our shareholders were not materially damaged, but that’s our opinion. There’s a school of thought that rapid trading in and out of a fund, even if it’s of a legal variety, does hurt the long-term shareholder. If the SEC deems that there has been damage to the shareholders, we’re prepared to make restitution and pay fines and move on, but we hope it doesn’t come to that.”

An ongoing federal/state mutual fund industry probe has focused on market timing and late trading practices as well as certain sales techniques.

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