Briefly:

(August 19, 2005) The IDA has scheduled a hearing later this month in relation to market timing allegations against HSBC Securities. A panel will review a settlement agreement relating to market timing activities in mutual funds that occurred between January 2002 and July 2002, the brokerage industry association said in a release today.

“The hearing also concerns under-reporting by HSBC Securities of information requested by the IDA.”

The inquiry is scheduled for August 31. Details will be released on that date if the panel accepts the settlement agreement.

Last December, three bank brokerage firms were ordered to pay $41 million by the IDA for mutual fund market timing violations. TD Waterhouse Canada was hardest hit by the IDA, penalized $20.7 million. RBC Dominion Securities was penalized $17 million, while BMO Nesbitt Burns was slapped with a $3.7 million penalty.

At the time, IDA senior vice-president Paul Bourque said the investigation only involved those three firms, but he cautioned that if more evidence of market timing was uncovered, other dealers could also face penalties.

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CIBC introduces commodity-linked note

(August 19, 2005) CIBC World Markets today released the Commodity-linked Rainbow Deposit Notes, Series 1, principal protected notes linked to the performance of a basket of commodities.

The six-year notes provide exposure to crude oil copper, aluminum and natural gas.

Variable interest payable at maturity is determined at the end of the term, by looking at the change in commodity prices (positive or negative) and applying a greater weighting to the best performing commodities and a lesser weighting to the poorer performers.

The notes are available through advisors until September 16.

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CFA Institute releases final exam results

(August 19, 2005) About half of the nearly 6,000 Canadians who wrote their final CFA exam in June passed, the CFA institute announced today. Canada’s 48% pass rate matched the worldwide average, which attracted close to 59,000 candidates.

To earn the CFA charter, candidates must pass three six-hour exams. The Level 1 worldwide pass rate was 36% and the Level 2 pass rate was 56%.

“Having passed the third exam and completed the required level of work experience, you will soon join a dedicated group of CFA charterholders in 114 nations who have mastered the curriculum and passed the same rigorous exams,” said CFA Institute president and CEO Jeff Diermeier in a letter to this year’s candidates. “All of you have been measured against a single, global standard of excellence and commitment to ethical conduct.”

Those who passed the Level III exam will begin receiving their CFA charters in early October, provided that they also have completed the minimum work experience requirement of three years and signed the CFA Institute’s Code of Ethics and Standards of Professional Conduct.

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Hedge funds assets slide in Q2

(August 19, 2005) Global hedge fund assets fell 2% in the second quarter, to $1.06 trillion from $1.08 trillion, the Barclay Group reports. Managed futures assets were flat, at $121 billion.

In spite of the second quarter decline, hedge fund assets have grown $17 billion, or 1.6%, since the beginning of the year. Fund of funds assets maintained their strength during Q2, climbing 11% to $564 billion.

“We’re seeing redemptions from single manager funds even as money continues to flow into funds of funds,” says Sol Waksman, president of the Barclay Group. “The data supports the anecdotal evidence that high net worth investors, who typically have shorter-term time horizons and higher absolute return targets, have been selling while risk-averse institutional investors with longer-term time horizons have been buying.”

Seven of the 14 hedge fund sectors monitored by Barclay saw money under management fall during Q2, while five sectors rose, paced by emerging markets, and two were unchanged.

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IFB elects new president

(August 18, 2005) Independent Financial Brokers has elected Saskatoon’s Merlin Chouinard as its new president, replacing David Barber who led the association for five years. Barber will remain on the IFB’s board, whose size has been decreased to 18 members from 21.

New additions to the board include Arnold McCurdy of Cobourg, Ontario, Neil MacLean of Guelph, Ontario, Doug Gleed of Newmarket, Ontario and Merril Whelan of Charlottetown.

Chouinard has been in the life insurance industry since 1969 and founded his own firm, Sentinel Life Management in 1981. That firm is now part of the Sentinel Financial Group, with offices in Saskatoon, Calgary and Winnipeg.

He has been a member of the IFB since 2000 and was first elected to the board in 2002.

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GMP Capital plans income trust conversion

(August 18, 2005) GMP Capital executives have begun the process of converting the company to an income trust. After reviewing a conversion proposal, the board of directors has agreed to the plan, in principal, and authorized the executive committee to pursue and negotiate the transaction with regulators and third parties, and submit a final structure to the board for its consideration and approval.

If the board accepts the proposal, the deal would require court approval and two-thirds support from the company’s voting shareholders. GMP says it anticipates the conversion, if successful, will be completed by November 2005.

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MDS Capital acquires venture capital manager

(August 18, 2005) MDS Capital is buying up all outstanding shares of the Canadian Venture Capital Management Corporation (CVCMC), owned by Stilco Investments.

After the deal is completed MDS Capital will become the sole shareholder and operator of CVCMC, which includes Medical Innovations Management, manager of the B.C. Medical Innovations Fund, a labour sponsored investment fund that focuses exclusively on the health science sector in that province.

MDS Capital currently owns 50% of CVCMC shares and has assisted in the management of the B.C. Medical Innovations Fund since 2004.

To complete the deal, Stilco president, Dr. Calvin Stiller is resigning as chairman and CEO of CVCMC and the Medical Innovations Fund.

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RBC changes managers, wraps up two RSP funds

(August 18, 2005) RBC Asset Management has appointed Santa Monica-based Alethia Research and Management as sub-advisor to the RBC Private U.S. Growth Equity Pool.

The fund was launched in August 2003 but was not offered by prospectus until July this year. Management fees are 1%, plus operating expenses, for F-class shares. The pool, designed for long-term investors who can accept considerable value fluctuations, invests in common stocks and equivalent securities of U.S. corporations that offer above average prospects for growth, RBC says.

The company is also terminating the RBC Private RSP U.S. Large Cap Index Pool and the RBC Private RSP International Index Pool in response to the elimination of the foreign content rule.

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Canadians increase spending on foreign investments

(August 18, 2005) Canadian investors acquired $5.4 billion of foreign securities in June, returning to their pattern of strong acquisitions, following a break in May that saw only $373 million in new foreign securities purchases.

Foreign bonds received most of the new investment dollars in June, with $2.3 billion in new purchases. Canadians also continued to invest in U.S. equities, while divesting some of their holdings in overseas stocks. Over the second quarter, Canadians have purchased $9.1 billion in foreign securities, the highest level on a quarterly basis in over three years.

Foreign investors meanwhile, reduced their holdings of Canadian securities by $2.1 billion in June following nine months of continuous buying. During the month, non-resident holdings of Canadian bonds fell by $1.2 billion, the largest drop in the sector since February 2004. Foreign investors also continued to decrease their holdings of Canadian equities, selling off $447 million in June.

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American relying too heavily on housing wealth, TD says

(August 18, 2005) Record numbers of American homeowners are tapping into their home equity, providing powerful economic stimulus that could account for as much as half of the growth in real consumer spending over the last two-and-a-half years.

TD economists say affordability is already eroding in a number of regions and personal debt loads are at record levels. Given current conditions, they say rising interest rates will squeeze demand and refinancing activity, thereby slowing U.S. expansion by the second half of 2006.

“Even if house prices don’t contract, but rather, expand at a pace that is more consistent with longer term trends, a waning wealth effect still has the power to dramatically slow the U.S. expansion,” says TD economist, Beata Caranci.

Her best case scenario calls for a 0.7% drop in real consumer spending. This scenario does not take even a nominal house price correction into account. If, however, the housing boom is followed by a period where growth rates under perform historical norms, she says the annual growth rate could easily be shaved by a full percentage point or more.

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Loring Ward cuts Canadian ties

(August 17, 2005) Loring Ward is selling assets of its Canadian wealth management business to a company controlled by Marty Weinberg and Jim Morden, as part of its transition to a U.S.-based structure.

Weinberg has resigned his position as chair of Loring Ward. Two other Canadian directors, Morris Perlis and Holger Kluge, have also tendered their resignations. Three American directors were elected to the company’s board earlier this month.

“We are indebted to all three individuals. Each has played a key role in guiding Loring Ward and served the company with great distinction,” said Loring Ward president Donald Herrema. “In particular, Marty Weinberg, founder and former CEO of Loring Ward International and its predecessor, Assante, has been most influential in our success.”

Loring Ward — which was spunoff from Assante when the Winnipeg-based firm was purchased by CI — is moving its head office to New York and is targeting the American high-net-worth market.

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Regulator issues sanctions against former Thomson Kernaghan director

(August 17, 2005) The Ontario Securities Commission has terminated the registration of former Thomson Kernaghan director Lee Simpson. He has also been permanently prohibited from becoming a director or officer and was ordered to pay $50,000 in costs related to the investgiation.

In a settlement agreement, Simpson admitted he was responsible for supervising the activities of rogue trader Mark Valentine, who was barred from the brokerage industry last year in relation to a series of trades and loans dating back to 2002.

Simpson signed off on Valentine’s loans and failed to ensure they were properly disclosed to the IDA. However, the OSC says when Simpson become aware of the issues surrounding Valentine’s conduct, he responded proactively and cooperated with regulators prior to the firm’s bankruptcy.

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Americans to keep working in their golden years

(August 17, 2005) Seventy percent of American workers plan to keep working even after they retire from their main job, a new poll suggests.

Only 13% said they planned to stop working entirely while 14% said they would do some volunteer work. The rest said they would continue in either a full or part-time position.

“The traditional notion of retirement, where one stops working completely and enjoys leisure time with friends and family, is obsolete,” says Carl Van Horn, Professor of the Heldrich Center for Workforce Development at Rutgers University, which conducted the survey.

The trend towards working past retirement age appears to be driven mostly by financial concerns, Van Horn adds. For example, although 39% of U.S. workers believe they are primarily responsible for securing their retirement income, 35% admit they have saved nothing to supplement their government pension plans.

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TD Bank settles Enron suit

(August 16, 2005) Another Canadian bank has settled with Enron over its alleged role in the collapse of the energy trader. TD Bank Financial has agreed to pay a total of $130 million US to settle a number of claims.

“We have agreed to a negotiated settlement in this matter because we thought it was preferable to the time, expense and unpredictability of litigation and for that reason, believe that it is in the best interest of our shareholders,” said Ed Clark, president and CEO, TD Bank Financial Group. He added that the bank has been bracing itself for the fallout of these proceedings for the past two years, shoring up its balance sheet.

The settlement includes: $50 million to settle common law claims; $20 million for payments made by Enron to creditors in the three years prior to declaring bankruptcy; and $60 million for Enron to allow the bank to transfer additional claims to third parties. The bank will take an after-tax charge of $238 million.

The settlement allows TD to admit no liability or wrong-doing, which would have been held against the bank in a massive class-action suit in Texas. The bank is adding $300 million to its existing litigation reserve. On August 5, CIBC agreed to pay $250 million to extricate itself from its Enron exposure, but also agreed to a $2.4 billion settlement, the largest so far in the case..

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GGOF launches Floating Rate Fund

(August 16, 2005) Guardian Group of Funds has launched the GGOF Floating Rate Income Fund, providing exposure to short term interest rate fluctuations. Such a fund should benefit from rising interest rates.

“Through direct investments and by using instruments that create floating rate streams of interest income, we’re able to offer Canadian investors a product that offers protection against short-term interest rate risk, while paying a high level of current income,” said Gavin Graham, vice-president and director of investments, GGOF.

Income investing has been all the rage since the stock market collapse of 2000-2001, but some have been fretting about the effects to interest rate increases on investments such as income trusts and bonds.

The fund will be managed by Steve Kearns of Guardian Capital LP (GCLP), the manager of GGOF’s Canadian High Yield Bond Fund and co-manager of the Canadian Diversified Monthly Income Fund, Resource Fund and Canadian Balanced Fund.

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Venture capital up sharply in Q2

(August 16, 2005) Canada’s Venture Capital and Private Equity industry (CVCA) grew to $627 million in the second quarter of 2005, up 53% from the same period last year, and the highest quarterly total in four years.

“This quarter’s investments continue the growth which has been underway for two years,” said CVCA president Dr. Robin Louis. “They reflect a good level of high quality Canadian firms seeking venture capital.”

The 10 largest deals captured 41% of the total capital invested, as compared to a 19% share in 2004.

Canadian firms attracted a fair amount of capital from abroad, mostly from the U.S., to the tune of $219 million.

“Canadian firms and their Canadian venture investors are actively pursuing funding from abroad,” said Louis. “Their success during the quarter results from the high quality of the Canadian companies and also because the U.S. industry has a large amount of capital available, and this is causing deal prices to increase there.”

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Energy sector shrugs off strong loonie

(August 15, 2005) It’s no secret that record crude oil prices have boosted the fortunes of North America’s energy sector. However, performance has also been affected by fluctuating foreign exchange rates, says Standard & Poor’s in a report released today.

For example, Canadian oil and gas companies have been hurt somewhat by the strong loonie, the report says. However, foreign exchange fluctuations were completely eclipsed by rising oil and natural gas prices, S&P says, noting that while the loonie has gained 25% since 2002, energy prices have soared 100%.

“By this measure, price swings in hydrocardon have had four times the effect on realized revenues compared with foreign exchange movements.”

S&P predicts that exchange rates will have only a moderate influence on the financial performance of Canadian oil and gas companies in the short-term, since the loonie is expected to remain in the 80 to 85 cent US range.

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Jovian acquires Horizon Funds

(August 15, 2005) Jovian Capital is continuing its buying spree, today announcing an agreement in principle to take over hedge fund specialist Horizons Funds.

Under the terms of the deal, Horizons would become part of Jovian Capital’s subsidiary, Jovian Asset Management. The transaction is expected to close within 90 days, pending regulatory approval.

Horizons manages and distributes several open-ended hedge funds: Horizons Mondiale Hedge Fund, Horizons Tactical Hedge Fund, and Horizons Phoenix Hedge Fund, as well Horizons Diversified Fund, whose securities are sold in the prospectus exempt markets.

Horizons, established in 1987 and based in Vancouver, has approximately $150 million in assets under management.

Jovian has numerous specialized firms under its umbrella, including Pescara Partners, Accumulus Management and T.E. Financial Consultants.

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Resolute Growth Fund closing to existing investors

(August 15, 2005) The Resolute Growth Fund — which was closed to new investors last year — will be capped entirely effective August 31, meaning existing investors will no longer be able to contribute to the popular small cap offering.

The fund’s net asset value has now reached $395 million. Resolute, whose main holdings are in the energy sector, says it will no longer be accepting additional orders to purchase units of the fund after August 31, except in “limited and exceptional circumstances.”

Fund manager Tom Stanley raised some eyebrows in the industry earlier this summer when he asked unitholders for permission to raise management fees. They overwhelmingly agreed, but Stanley backed off, stating that he was only looking for the flexibility to hike fees in the future.

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CFA Institute approves harmonized performance standards

(August 15, 2005) The CFA Institute has issued new guidelines in an effort to establish an industry-wide approach to calculating and reporting investment performance results in separately managed, or wrap accounts.

The Global Investment Performance Standards (GIPS) replace existing AIMR Performance Presentation Standards already in use by firms in the U.S. and Canada.

“The addition of wrap fee/separately management account provisions and guidance to the GIPS standards culminates a lengthy process in which we considered a broad range of issues and concerns from the investment community,” says Alecia Licata, director of investment performance standards at the CFA Centre.

Assets held in separately managed accounts exceeded $600 billion US in 2004, according to Cerulli Associates. While the portfolios are common in the U.S. and Canada, they have expanded recently to other markets, the CFA Institute says, including Japan and Britain. “The new GIPS provisions and guidance were developed in response to the need for a global standard to calculate and present investment performance results for these products.”

The provisions, effective January 1, 2006, require firms to provide detailed information about fees, requiring the disclosure of fee schedules and the presentation of performance on a “net-of-fee” basis, the CFA adds.

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