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Fund Governance Comment Period Reopened

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  • Baker, John
    The Securities and Exchange Commission has reopened the comment period for comments on its fund governance rule amendments in order to permit public comment on
    Message 1 of 1 , Jan 1, 2007
      The Securities and Exchange Commission has reopened the comment
      period for comments on its fund governance rule amendments in order to
      permit public comment on two papers prepared by its Office of Economic
      Analysis. Release No. IC-27600, 71 Fed. Reg. 76618 (Dec. 15, 2006).
      The two papers were posted to the SEC website on December 29, and
      comments are due on or before March 2, 2007. The action shows that the
      SEC is still considering some version of the fund governance rule
      amendments.

      One of the papers is a memorandum providing a review of the
      literature in financial economics related to mutual fund governance, in
      the form of independent chair and directors, and performance in mutual
      funds. The paper notes that most of the literature is on board
      independence, and the literature on the economic consequences of an
      independent chair is substantially smaller. The review finds that
      boards with a greater proportion of independent directors are more
      likely to make decisions, such as negotiating lower adviser fees, that
      may potentially lead to higher returns. Nevertheless, a broad
      cross-sectional analysis reveals little consistent evidence that board
      composition is associated with lower fees and/or higher returns for fund
      shareholders. The paper suggests that greater board independence may be
      desirable for a set of specific decisions made by the board, especially
      when agency conflicts between management and shareholders are of primary
      concern, but independence might not create the same value in small firms
      or where other incentive alignment mechanisms are already in place, such
      as insiders with a large equity stake.

      The second paper notes that existing empirical studies of the
      effects of mutual fund governance have failed to consistently document a
      statistically significant relation between fund governance and
      performance, particularly with respect to board chair independence. It
      suggests that the lack of such evidence may be a result of the limits of
      standard statistical methods in identifying such a relation and is not
      necessarily indicative of the failure of such a relationship to exist.

      The SEC's notice of the comment deadline, with links to the
      papers, is at

      http://www.sec.gov/rules/proposed/2006/ic-27600-notice.pdf

      For my prior post on the SEC request for comments, as originally
      made in June, see

      http://groups.yahoo.com/group/FundLaw/message/1085


      John M. Baker <JMB@...>
      Stradley Ronon Stevens & Young, LLP http://www.stradley.com
      1220 19th Street NW, Suite 600
      Washington DC 20036
      202.419.8413
      202.822.0140 fax
      FundLaw Listowner http://groups.yahoo.com/group/fundlaw
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