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Wednesday, September 10, 2014

Are Fund Directors Paid Too Much?

News summary by MFWire's editors

Expect investors to start asking more questions about the directors on the boards of the funds you manage.

The Wall Street Journal's James Sterngold has delved into the subject in an article that also received attention from sister Dow Jones publication Barron's.

Sterngold starts the article in this fashion:

IT MAY BE the most lucrative job you never heard of, and the companies involved may be delighted to keep it that way.

Citing SEC filings, Sterngold peers at the salaries of directors on a number of fund boards. For example, he writes that the directors for a set of Pimco funds "were paid between $306,000 and $417,000 in the fiscal year ended March 31, 2013."

Some directors for a group of BlackRock funds, Sterngold writes, were paid$315,000 to $388,750, while outside directors of a few Fidelity equity funds, received between $400,000 to $554,250.

The outside directors of a large group of BlackRock Inc.'s funds were paid $315,000 to $388,750, and at Fidelity outside directors of some equity funds were paid $400,000 to $554,250, according to company filings.

Sterngold writes this on the subject:

The reality, some experts say, is that the boards are not truly independent, are not really elected by investors and do not take tough stands with the portfolio managers they supposedly police. Nevertheless, in return for approving what are usually lucrative fees to fund managers, the directors are well paid—in some instances, very well paid.

Fund firms declined to comment for Sterngold's story, but he was able to garner quotes from Amy Lancellotta, managing director of the Independent Directors Council, on the benefits these directors provide funds.

He also spoke to Morningstar research director Laura Lutton, who told Sterngold that boards "generally do a pretty good job." However, she told Sterngold, "a problem is the lack of transparency."

The full article can be accessed here.  

Edited by: Tommy Fernandez


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