Alliance Cap Mgmt Holding L.P. (AC) has offered to reduce its mutual fund management fees by 20% for the next five years, saving investors an estimated $350 million, as part of its plan to settle allegations that it allowed improper trading of its funds, according to people familiar with the matter.
The unprecedented fee reduction, negotiated with the New York attorney general’s office, would come on top of the $250 million fine that Alliance Capital is expected to agree to pay to settle civil fraud charges the company could be facing, people familiar with the negotiations say. As reported, that fine, which would be the largest ever levied against a mutual-fund company. It would include restitution to shareholders harmed by the improper fund-share trading and disgorgement of fees the firm earned while permitting the improper trading. A spokesman for Alliance declined to comment.
A final agreement to settle allegations by New York and the SEC, which would also include a number of structural changes in the way Alliance funds are run, is likely to be announced this week, according to people familiar with the negotiations.
At issue are fees that Alliance and other mutual-fund companies charge for doing the actual investment management of their funds — researching securities and buying and selling stocks or bonds in their portfolios. Management fees are just one part of the total expenses that investors shoulder when owning shares of a mutual fund.
New York Attorney General Eliot Spitzer has made getting fee reductions a priority in his settlement negotiations with fund companies.
Alliance Capital manages a total of $456 billion. Its mutual funds hold about $39 billion, but have suffered about $2 billion in net investor withdrawals.