Sunday, November 24, 2013

Jones v. Harris Associates L.P. case brief

Jones v. Harris Associates L.P. case brief summary
527 F.3d 627 (7th Cir. 2008)


CASE SYNOPSIS
Plaintiff shareholders appealed from a judgment of the United States District Court for the Northern District of Illinois, Eastern Division, which granted summary judgment to defendant advisor on plaintiffs' claim that defendant violated § 36(b) of the Investment Company Act of 1940, 15 U.S.C.S. § 80a-35(b).

CASE FACTS
Plaintiffs, who owned shares in several mutual funds, contended that the fees were too high and thus violated § 36(b) of the Investment Company Act of 1940.

DISCUSSION

  • The instant court found that defendant charged a lower percentage of assets to other clients, but this did not imply that it must be charging too much to the funds. 
  • The instant court reasoned that different clients called for different commitments of time. Pension funds had low (and predictable) turnover of assets. 
  • Mutual funds may grow or shrink quickly and must hold some assets in high-liquidity instruments to facilitate redemptions. 
  • That complicated an adviser's task. 
  • The instant court also reasoned that joint costs likewise make it hard to draw inferences from fee levels. 
  • Some tasks in research, valuation, and portfolio design would have benefits for several clients. 
  • In competition those joint costs were apportioned among paying customers according to their elasticity of demand, not according to any rule of equal treatment. 
  • The court also found that the fees were not hidden from investors--and the funds' net return had attracted new investment rather than driving investors away.

CONCLUSION
The judgment was affirmed.

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