After studying chapter 17, you should be able to: Understand the dividend retention versus distribution dilemma faced by the firm, explain the Modigliani and Miller (M&M) argument that dividends are irrelevant, explain the counterarguments to M&M – that dividends do matter, identify and discuss the factors affecting a firm’s dividend and retention of earnings policy,. | 8- McGraw-Hill/Irwin Chapter Seventeen Mutual Funds and Hedge Funds 17- McGraw-Hill/Irwin Mutual Funds and Hedge Funds Mutual Funds (MFs) and Hedge Funds (HFs) are financial institutions (FIs) that pool the financial resources of individuals and companies and invest those resources in portfolios of assets The first MF was established in Boston in 1924 By 1970 360 MFs held about $50 billion in assets Money market mutual funds (MMMFs) were introduced in 1970 Tax-exempt MMMFs were introduced in 1979 By 2007 more than 8,000 MFs held over $12 trillion in assets 17- McGraw-Hill/Irwin Mutual Funds Cash flows into MFs is highly correlated with the return on the NYSE Growth has also resulted from the rise in retirement funds under management by MFs MFs managed ~ 25% of retirement fund assets in 2007 MFs are the second most important group of FIs as measured by asset size, second only to commercial banks Banks’ share of all MF assets has grown to 21% in 2007 Insurance companies managed 10% of MF industry assets in 2007 17- McGraw-Hill/Irwin Mutual Funds The barriers to entry in the MF industry are low the largest MF sponsors have not increased their market share recently the largest 25 MF companies managed 76% of industry assets in 1990 the largest 25 MF companies managed 71% of industry assets in 2007 the composition of the top 25 firms in the industry has changed seven of the largest 25 firms in 2007 were not among the top 25 in 1990 17- McGraw-Hill/Irwin Mutual Funds The MF industry has two sectors short-term funds invest in securities with original maturities of less than one year money market mutual funds tax-exempt money market mutual funds long-term funds invest in portfolios of securities with original maturities of more than one year equity funds consist of common and preferred stock bond funds consist of fixed-income capital market debt securities hybrid funds consist of both stock and bond securities 17- . | 8- McGraw-Hill/Irwin Chapter Seventeen Mutual Funds and Hedge Funds 17- McGraw-Hill/Irwin Mutual Funds and Hedge Funds Mutual Funds (MFs) and Hedge Funds (HFs) are financial institutions (FIs) that pool the financial resources of individuals and companies and invest those resources in portfolios of assets The first MF was established in Boston in 1924 By 1970 360 MFs held about $50 billion in assets Money market mutual funds (MMMFs) were introduced in 1970 Tax-exempt MMMFs were introduced in 1979 By 2007 more than 8,000 MFs held over $12 trillion in assets 17- McGraw-Hill/Irwin Mutual Funds Cash flows into MFs is highly correlated with the return on the NYSE Growth has also resulted from the rise in retirement funds under management by MFs MFs managed ~ 25% of retirement fund assets in 2007 MFs are the second most important group of FIs as measured by asset size, second only to commercial banks Banks’ share of all MF assets has grown to 21% in 2007 Insurance .
