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July 18, 2006 at 08:00 PM
SUMMIT, N.J. (HedgeWorld.com)–The president of a consulting firm that assists asset managers (for hedge funds and others) in tracking and optimizing the value of their soft-dollar commissions said July 13 that he believes the use of such commissions will expand in the years to come.
Robin Hodgkins heads Cogent Consulting LLC, founded in 1983, which helps managers “evaluate the value that they receive both from an execution and from a research point of view,” he said. Mr. Hodgkins said he believes that Greenwich Associates was right when it estimated recently that close to 9% of total U.S. equity commissions are now part of soft-dollar arrangements. He said that this percentage will increase, “specifically because of the favor the Securities and Exchange Commission has now done for the industry,” via the unanimous vote June 12 to approve an interpretive release on soft money.
He said that the SEC has now put its seal of approval on soft dollars as a legitimate way of paying for research.
Although in certain respects the interpretative release limits softing, Mr. Hodgkins said that the limits–such as a prohibition on paying for mass-marketing periodicals with brokerage commissions–are a small part of the big picture. Some asset managers might be tempted to argue that they make better decisions if they read Forbes regularly than if they don’t. But, Mr. Hodgkins said, they might equally well argue that they couldn’t do their job without electric lights. They don’t pay the utility company through their brokerage commission.
Some of the charges that have been leveled at the use of soft dollars–such as its alleged use to pay for vacations in Bermuda–strikes Mr. Hodgkins as simply silly and trivializing.
The SEC’s action July 12 came about two weeks after receipt of a letter from two Senators–Charles E. Schumer (D-N.Y.) and John Sununu (R-N.H.). (The two Senators signed this letter on June 7, but it wasn’t stamped as delivered to the SEC until June 26.) Sens. Schumer and Sununu reminded the SEC that the proposed rule was issued in October 2005, and the comment period closed on Nov. 25, 2005.
The senators noted that during the three years that the SEC has been studying the issue of soft money, “many asset managers have reduced or eliminated research commissions as they wait for final guidance?? 1/2 .”
