Compliance August 4, 2016

Neuberger Berman Accused of Self-Dealing in 401(k) Plan

The case calls out one fund in particular, which it says “was larded with high fees and has suffered from consistently abysmal performance.”
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The retirement plan industry has seen a trend this year in lawsuits filed against investment managers for self-dealing in their own retirement plans, and Neuberger Berman is the target of the latest filing. 

Plaintiff Arthur Bekker, individually and on behalf of a class of similarly situated participants in the Neuberger Berman Group 401(k) Plan, and on behalf of the plan, has accused Neuberger Berman and the plan’s investment committee of violating fiduciary duties under the Employee Retirement Income Security Act (ERISA) by forcing the plan into investments managed by Neuberger or an affiliated entity, which charged excessive fees that benefited Neuberger and the managers of the proprietary funds. 

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The case calls out one fund in particular, the Value Equity Fund, which it says “was larded with high fees and has suffered from consistently abysmal performance.” According to the complaint, in 2011 the defendants opened the fund to new investments and have maintained the fund in the plan despite its high fees and persistent and increasing underperformance compared to readily available alternatives. The lawsuit says the decision to continue to offer the fund, and to open the fund to new investments, were fiduciary breaches which cost the plan more than $130 million. 

The case alleges that Neuberger “profited handsomely from the arrangement, receiving for itself tens of millions of dollars in fees during the class period from the plan’s investment in the Value Equity Fund, and more from the inclusion of other Neuberger-managed options.” The lawsuit says the fees were 40 times more than comparable alternative funds. It also contends the manager of the fund, a shareholder in Neuberger, profited from assets he removed from the fund and the plan through fees collected directly for him and by the Straus Group at Neuberger, which the manager lead and co-founded, as well as by Neuberger Berman Trust N.A. 

The complaint says each time the plan paid fees to Neuberger Berman Trust Company N.A., or other Neuberger entities, in connection with the plan’s investment in the fund, the defendants caused the plan to engage in a prohibited transaction under ERISA. 

The complaint in Bekker v. Neuberger Berman Group LLC et. al. is here.

Products August 4, 2016

Investment Products and Services

BMO Global Asset Management expands availability of stable value fund; American Funds offers new fixed income funds; and Franklin Templeton offers Global Macro Strategies Fund.
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BMO Global Asset Management Expands Stable Value Fund

BMO Global Asset Management has expanded the availability of its BMO Stable Value Fund, formerly known as the BMO Employee Benefit Stable Principal Fund, to outside recordkeepers and other 401(k) providers. Previously, the fund was available to only plan sponsors with an existing relationship to BMO Harris Bank N.A.

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The BMO Stable Value Fund is meant to meet the needs of plan sponsors looking to replace money market funds with other ultra-short term bond strategies.

“This change is designed to meet the needs of more and more plan sponsors as they continue to look for easily accessible products that can provide more yield than a traditional money market fund,” says Christopher Barlow, national director of Defined Contribution Investments for BMO Global Asset Management (GAM).

He added, “The BMO Stable Value Fund provides those plan sponsors with an attractive alternative for the growing number of plan participants who are looking for conservative investments. It also demonstrates our sustained commitment to our Stable Value and Defined Contribution Investment business.”

The fund seeks to maintain a net asset value of $1 per share, the company says. It will be managed by portfolio managers Don McConnell and Katie DellaMaria. BMO GAM manages $233 billion and offers 45 mutual funds to U.S. investors.

The BMO Stable Value Fund adds a collective-trust option to its suite of 45 mutual funds available to U.S. investors. It is an addition to the existing family of money market funds, which includes the BMO Institutional Prime Money Market Fund, the BMO Prime Money Market Fund, the BMO Tax-Free Money Market Fund and the BMO Government Money Market Fund.

You can learn more about the BMO Stable Value Fund here.

NEXT: American Funds Launches Two New Fixed Income Funds

American Funds Launches Two New Fixed Income Funds

American Funds is offering investors two new fixed income funds—the Corporate Bond Fund and Emerging Markets Bond Fund.

The Corporate Bond Fund will invest at least 80% of its assets in corporate bonds and invest exclusively in investment-grade securities, the company says. The Emerging Markets Bond Fund will invest at least 80% of its assets in securities of emerging-markets issuers including sovereign debt and debt of companies located in or with substantial business in emerging markets.

Three portfolio managers on the Emerging Markets Bond Fund each have a total of more than 20 years of experience in emerging-market debt, according to American Funds.

With the addition of these two investment vehicles, American Funds now offers 17 fixed income funds.

You can learn more about American Funds here. 

NEXT: Franklin Templeton Investments Offers New Global Macro Strategies Fund

Franklin Templeton Investments Offers New Global Macro Strategies Fund

Franklin Templeton Investments has launched the Franklin K2 Global Macro Opportunities Fund, which will invest in a variety of global macro strategies and be sub-advised by multiple strategy managers.

The liquid-alternative fund will aim to provide capital appreciation over a full market cycle by allocating the fund’s assets across global macro-focused investment strategies, which are generally concentrated on discovering macroeconomic investment opportunities across numerous markets and investments. The fund’s allocations to these strategies and sub-advisers will reflect the portfolio management team’s top-down market views.

“Against the backdrop of increased global macroeconomic and political uncertainty, many U.S. investors are potentially taking on more equity risk than their goals would dictate, and may be open to looking for new ways to diversify their investment portfolios,” says Rob Christian, a portfolio manager and senior managing director for K2 Advisors, part of Franklin Templeton Solutions. “Global macro strategies can serve as a tool that may help provide diversification benefits in relation to equity markets, especially during periods of market stress.”

This U.S.-registered fund will add to the firm’s liquid alternative offerings, which include the Franklin K2 Long Short Credit Fund, and the Franklin K2 Alternative Strategies Fund.

“With the introduction of the Franklin K2 Global Macro Opportunities Fund, we can now offer retail investors access to additional potential sources of total return,” says Brooks Ritchey, a portfolio manager and senior managing director for K2 Advisors. “For investors looking to complement their overall portfolios with a solution that historically has offered lower correlation to equity markets and a diversified, multi-manager approach, we believe this Fund can be an important tool. We are very excited about the potential utility of this fund in helping equity investors seek to manage investment portfolios through volatile market periods.”

The fund will allocate its assets to a variety of hedge strategy managers selected by K2 Advisors through a rigorous, proprietary due diligence process. The strategies employed by the initial hedge strategy managers may include discretionary and systematic macro strategies.

The Fund’s initial set of sub-advisersincludes Aspect Capital Limited (Systematic), Emso Asset Management Limited (Discretionary) and Graham Capital Management (Systematic).

More information about the fund can be found here.

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