Co-authored with Theresa Hamacher.
Risk matters as much as return in any mutual fund investment, but assessing the risk of a specific mutual fund can be a challenge. Even though mutual funds have become increasingly complex, their risk disclosure was designed for a simpler era, when funds used only traditional investment strategies.
Read the rest at FT.com. (May be behind paywall.)
New leadership is coming to the Securities and Exchange Commission with the nomination of Mary Jo White as SEC chairman.
So it seemed just the right time to ask mutual-fund and investing experts: What do you think officials in Washington could do to help mutual-fund investors the most?
Read the rest at wsj.com.
The investment management world used to be simple. Mutual fund managers sold stock and bond investments to the general public subject to stringent regulation, while unregulated hedge fund managers served only the very wealthy with much riskier investment strategies.
Read the rest at FT.com (behind paywall).
Co-authored with Theresa Hamacher.
Since the financial crisis of 2008, money market funds have been the subject of fierce debate. Regulators say money market funds need to be fundamentally transformed to prevent them from creating too much systemic risk. The fund industry has pushed back, trying to preserve the utility of money market funds for millions of investors. Fortunately, a smart compromise exists that would reform the riskiest money market funds while protecting retail investors.
Read the rest at washingtonpost.com
The road to money market fund reform has been politically arduous. In August, Mary Schapiro, then the Chairwoman of the SEC, was forced to call off a vote on money market fund reform. Three of the five commissioners had indicated that they were not prepared to support the rules under consideration. Fortunately, two of the three dissenters have recently expressed receptivity to some reforms in certain circumstances.
Read the rest at brookings.edu.
Co-authored with Lucas Goodman
From the abstract:
Many lawmakers have indicated support for reducing the statutory corporate tax rate from 35 to 25 percent on a revenue-neutral basis. However, they have not made clear how they would broaden the base enough to pay for that rate reduction. This report proposes a specific approach for revenue neutral corporate tax reform: limiting the tax deductibility of interest expense for C corporations.That would significantly reduce the tax code’s bias in favor of debt-financed investment relative to equity-financed investment, while keeping the overall cost of capital roughly the same.
The authors propose reform that lowers the corporate tax rate from 35 to 25 percent and allows nonfinancial C corporations to deduct only 65 percent of their interest expense, with special treatment for the financial sector and for companies that
would have otherwise realized taxable losses. Based on a static analysis of aggregate data between 2000 and 2009, the authors calculate that the revenue loss from lowering the corporate tax rate to 25 percent would have been about the same as the revenue gain from their proposed limits on interest deductions.
Read the paper (PDF)
There is a sensible compromise to the debate over money market fund reform that regulators should seriously consider: requiring a fluctuating share price for some money market funds owned by institutional investors, but not for those owned by retail investors. Currently, all money market funds may use a fixed share price – known as the “net asset value”, or NAV – at one dollar per share, subject to strict conditions.