The MFWire
Manage Email Alerts | Sponsorships | About MFWire | Who We Are

Subscribe to MFWire.com's News Alerts [click]

Rating:What Does the F-Squared Scandal Mean For Virtus? Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, February 10, 2015

What Does the F-Squared Scandal Mean For Virtus?

News summary by MFWire's editors

It's not just F-Squared and its former chief feeling the effects of their performance-reporting and back-testing scandal.

Sanders Wommack of RIABiz offers a deep-dive into what the SEC's attack on F-Squared and former F-Squared chief Howard Present means for Virtus [profile], the mutual fund shop that F-Squared subadvises for. The article is Wommack's latest must-read for any fundster following the F-Squared saga. And the question at the center of the article is, what did Virtus know?

The public side of the scandal began in September 2014 when F-Squared, amidst a big jump in assets, revealed that it had received a Wells notice from the SEC about the performance record of F-Squared's flagship AlphaSector quantitative U.S. equity strategies. At the time, F-Squared subadvised five Virtus funds with $13 billion in combined assets under management (out of Virtus' then-$61 billion total AUM), and within days Virtus' shares fell nearly 20 percent. F-Squared replaced Present two months later, then settled with the SEC for $35 million. Yet the SEC's case against Present himself is still open. Through it all, different broker-dealers have been figuring out how to handle F-Squared-powered products going forward.

Now RIABiz shifts the lens to Virtus, a publicly-traded mutual fund shop based in Connecticut has been a key F-Squared ally for more than five years. The trade pub says that Virtus "has thus far signaled to investors that there's nothing to be unduly alarmed about." In a filing in November, the fund shop alluded to the F-Squared scandal as being unlikely "to have a material adverse effect on [Virtus'] consolidated financial condition." And on Virtus' Q4 2014 earnings call last month, Virtus CEO George Aylward said, "we're not going to answer any questions related to the sub-advisor or any regulatory matter."

RIAbiz, citing MarketCounsel CEO Brian Hamburger, ponders whether or not Virtus can protect itself in the SEC's still-ongoing investigation. The trade pub also cites four unnamed, former Virtus salespeople who describe a December 14, 2012 Virtus meeting where Present touted AlphaSector's track record as dating back to 2001. Two anonymous sources who were at the meeting told RIABiz that Virtus' then-head of product management chief then told the Virtus employees present to ignore Present's track record comments and that the record was actually from backtesting, not real assets. What's a marketer to do when a PM goes off-script?

The article makes no mention of any subsequent meetings along those lines. Indeed, RIABiz's sources say that none of the Virtus sales people "confronted management" after the meeting, and that Virtus didn't change its sales practices for the F-Squared-powered funds "until late October 2013, after the SEC began its investigation into F-Squared."

The trade pub also notes that in December 2012, the same month as that meeting, Virtus launched three mutual funds powered directly by Newfound Research. Newfound's Corey Hoffstein, at the time a 20-year-old intern, created the quant engine underlying AlphaSector between 2007 and 2008. F-Squared repackaged that engine into a model portfolio. The Newfound-powered Virtus held just $5.33 million as of January 27, two years after launch. 

Edited by: Neil Anderson, Managing Editor

Stay ahead of the news ... Sign up for our email alerts now

 Do You Recommend This Story?

Return to Top
 News Archives
2022: Q2Q1
2021: Q4Q3Q2Q1
2020: Q4Q3Q2Q1
2019: Q4Q3Q2Q1
2018: Q4Q3Q2Q1
2017: Q4Q3Q2Q1
2016: Q4Q3Q2Q1
2015: Q4Q3Q2Q1
2014: Q4Q3Q2Q1
2013: Q4Q3Q2Q1
2012: Q4Q3Q2Q1
2011: Q4Q3Q2Q1
2010: Q4Q3Q2Q1
2009: Q4Q3Q2Q1
2008: Q4Q3Q2Q1
2007: Q4Q3Q2Q1
2006: Q4Q3Q2Q1
2005: Q4Q3Q2Q1
2004: Q4Q3Q2Q1
2003: Q4Q3Q2Q1
2002: Q4Q3Q2Q1
 Subscribe via RSS:
Add to My Yahoo!
follow us in feedly

  1. Irish Funds Annual Global Funds Conference 2022, May 30-31
  2. WealthManagement Edge, May 31 - June 3
  3. MFDF 2022 Fund Governance and Regulatory Insights Conference, Jun 8-9
  4. 28th annual Expect Miracles East Coast Classic, June 9
  5. 2022 Sohn Investment Conference, June 9
  6. IDC webinar - Cybersecurity for Fund Boards: The Current Landscape, June 9
  7. MMI webinar - Driving Business Value with Artificial Intelligence & Data, June 15
  8. MFDF webinar - Key Takeaways From Morningstar's 2021 Annual Fund Fee Study, June 16
  9. MFDF Director Discussion Series - Open Forum (Chicago), June 21
  10. 2022 MMI Emerging Asset Managers Forum, June 23
  11. MFDF In Focus: Capitol Hill, A Conversation with Congressman Bryan Steil, June 28
  12. Financial Planning INVEST, Jun 28-29
  13. MFDF webinar - Differentiating Mutual-Fund-to-ETF Conversions, July 19
  14. MFDF Director Discussion Series - Open Forum (New York), July 20
  15. 2022 MMI Distribution Leadership Forum, Jul 20-21
  16. MFDF webinar - Fund Boards' Oversight of Investment Performance, July 28
  17. MFDF webinar - Performance, Perception and Manager Selection, September 14
  18. 2022 ICI Tax and Accounting Conference, Sep 18-21
  19. 5th annual Expect Miracles Atlantic Coast Classic, October 3
  20. Nicsa Fearless Leadership Symposium, Oct 6-7
  21. 2022 MMI Annual Conference, Oct 19-21
  22. 2022 IDC Fund Directors Conference, Oct 24-26
  23. 18th annual Expect Miracles Wine & Spirits Event, October 27
  24. Nicsa 2022 General Membership Meeting, October 31 - November 2
  25. Tiburon CEO Summit XLIII, Nov 7-9
  26. 2022 ICI Tech Summit, Nov 8-9

©All rights reserved to InvestmentWires, Inc. 1997-2022
14 Wall Street | 20th Floor | New York, NY 10005 | P: 212-331-8968 | F: 212-331-8998
Privacy Policy :: Terms of Use