SEC REQUIRES HEDGE FUND REGISTRATION: The Securities and Exchange Commission now requires hedge funds to register as investment advisors. Under the ruling, hedge funds will not have to register their individual funds. Rather, they have to provide basic information about the firm and are required to hire a chief compliance officer. Also, hedge fund firms are now subject to random inspections.Exceptions to the registration mandate include funds with less than $30 million under management, which will not have to register, although funds with $25 million or more are eligible for registration. Hedge funds that "lock up" their investors' money for two or more years or refuse to take new money can also avoid registration. The two-year loophole was meant to protect private equity and venture capital funds from getting caught up in the rule, but some managers invoked the exception to avoid registration.
GENWORTH ACQUIRES INSURER: Richmond, Va.-based Genworth Financial has agreed to acquire Continental Life Insurance Co., a Brentwood, Tenn.-based provider of Medicare supplement insurance, for $145 million.
It will combine its existing Medicare supplement business with Continental, and the consolidated operations will report to Genworth's long-term care insurance business.
PENSION CHANGES COULD COST $180B: Stricter pension accounting rules from the Financial Accounting Standards Board could cost billions for shareholders, according to a study conducted by HR consultancy Towers Perrin. The study said that 78 of the Fortune 100 companies surveyed offered defined post-retirement benefit plans. These companies could see a $180 billion, or 9.3 percent, reduction in shareholders' equity.
At press time, the stricter rules were expected to be proposed by FASB in March. Phase One would likely occur in time for year-end 2006 financial reporting - requiring companies to clean up their balance sheets. Phase Two is expected to force income statements to more accurately represent changes in the fair value of assets and liabilities from year to year.
The study also estimated that if the rules had been in effect for 2004, companies with pensions would have been forced to recognize $331 billion of liability on their balance sheets for the year, instead of the $62 billion that was actually recorded.
BUSH PROPOSES NEW REGULATOR FOR FANNIE, FREDDIE: Alongside the release of President Bush's budget proposal for 2007, the White House asked Congress to create a new regulator for home mortgage giants Fannie Mae and Freddie Mac. The regulator would be directed to cut the $1.4 trillion investment portfolios held by the companies.
In the budget proposal, the White House says that it believes the portfolios of loans and securities held by the government-sponsored firms pose a risk to the broader financial system by aggregating interest rates and requiring large amounts of hedging. The House of Representatives already passed a bill to create a new regulator for the companies, but the White House opposed that legislation because it did not specifically direct the supervisor to cut Fannie's and Freddie's portfolios.
Fannie Mae and Freddie Mac are the two largest buyers of home loans, and own or guarantee almost half of the $7.6 trillion U.S. mortgage market. Fannie has said that accounting errors from 2002 through 2004 could require it to restate $8.4 billion in earnings, while Freddie has said that it understated profits from 2000 until 2002 by $5 billion in an attempt to reduce earnings volatility. Both have lobbied against the proposed legislation, saying that the portfolios help them fulfill their mission to support the mortgage market.
FIDELITY GIFT FUND REPORTS RECORD YEAR: The Fidelity Charitable Gift Fund said that overall grants to charity last year surpassed $846 million - marking 2005 as the largest grantmaking year in its 15-year history.
The nation's response to Hurricanes Katrina and Wilma helped spark a 21 percent increase in grantmaking at the Gift Fund over the previous year. Gift Fund donors also expanded the number of charitable organizations for their grant recommendations by 10 percent, to 95,000. Fidelity said that the majority of grant dollars funded religious organizations (34 percent), community and human services (27 percent) or education (24 percent).
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