(Reuters) – The Securities and Exchange Commission (SEC) will unveil proposals aimed at stabilizing money-market funds in the event of another financial panic, the Wall Street Journal reported on Tuesday, citing people familiar with the matter.

The SEC looks to minimize any losses for shareholders of the money funds, which invest in short-term debt instruments. At least three of five SEC commissioners would need to approve the proposals to submit them for public comment, the newspaper said.

Under the SEC proposal, funds could boost their capital by injecting more cash from corporate coffers and issue stock or debt securities. The funds could also collect more money from shareholders, the paper said.

Investors wanting to sell all their holdings at once would be able to get only about 95 percent of their money back immediately, with the remaining 5 percent returned to them after 30 days, the paper said.

The SEC also plans to propose scrapping the fixed $1 net-asset value for money funds and make it floatable like other mutual funds.

However, the industry remains opposed to the idea. The bulk of the SEC's energies are devoted to developing a workable capital buffer, people told the paper.

Money-market funds are expected to preserve capital at all costs and investors consider the $1-a-share value sacrosanct. The funds are allowed to value their holdings at maturity — unlike others which mark-to-market — and to ignore small fluctuations in the value of their assets to maintain stability.

U.S. regulators have been working on ways to make money funds safer since the net asset value of Reserve Primary Fund, the oldest such fund, fell below the $1 mark in the wake of Lehman's collapse in 2008.

Officials at the SEC could not immediately be reached for comment by Reuters outside regular U.S. business hours.

(Reporting by Sakthi Prasad; Editing by Matt Driskill)

SHANGHAI/HONG KONG (Reuters) – China's $350 billion mutual funds industry may be stumbling due to a sliding stock market and fierce competition but that has not stopped new foreign entrants from paying hefty premiums — double of what they are offering in India, in some cases — to get their toes in.

Lured by long-term growth prospects in Asia's second-biggest fund market — estimated by some to hit $10 trillion in less than two decades — foreign investors such as Power Corporation of Canada (POW.TO) and Japan's Mitsubishi UFJ Trust and Banking Corp have recently struck deals with Chinese money managers.

Some of those deals were priced at more than 8 percent of the target firms' assets under management (AUM) — three times more than valuations for similar deals five years ago.

"It's a tough time for China's fund industry, but foreign investors are betting on the long-term growth potential in the world's fastest-growing major economy," said Howhow Zhang, head of research at Shanghai-based consultancy Z-Ben Advisors.

"On the other hand, in their home markets, there's little or even negative growth, so China has naturally become important strategically."

Zhang forecast China's funds industry could swell to $10 trillion by 2030, boosted by rising wealth and possible policy incentives that would channel more of China's massive savings and state pension funds into the capital markets.

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The pricing of the recent deals also represented a huge premium from a global perspective. In mature markets, deals are often priced in a range of 2-4 percent of AUM and even in hot emerging markets such as India, valuation has fallen now to about 4 percent.

The valuation trend is at odds with the rather subdued picture of the fund industry in China.

Assets under management has stagnated at around 2.3 trillion yuan in the past three years, even as the number of mutual funds more than doubled to around 890 during the period. Around 55 percent of the total assets are in equity and balanced funds.

Competition intensified among fund managers to attract and retain investors as China's stock market tumbled 22 percent in 2011 following a 14 percent slump during the previous year.

But a few factors are keeping valuations buoyant. Limited options for partnerships in China as well as lengthy approval procedures for new entrants are significant ones.

Then, there is the hope that local money managers would be allowed to list. Several major fund houses, including Bosera Funds and China AMC have been preparing for public share sales as they await policy changes, a source with knowledge of the situation told Reuters.

Also, acquiring a stake in an existing fund house is seen by many as a more efficient way of accessing China, compared with forming a joint venture from scratch, where building a brand and growing market share may take years.

POTENTIAL DEALS

Overseas money managers may operate in China only via joint ventures, in which foreign stakes are capped at 49 percent.

Of China's 66 fund houses, more than half are Sino-foreign ventures, with 13 foreign investors, including Deutsche Bank (DBKGn.DE), Morgan Stanley (MS.N) and Manulife Financial (MFC.TO), having entered the market through acquisitions.

More are expected to follow suit.

For example, Sumitomo Mitsui Financial Group (8316.T) (SMFG), Japan's third-largest lender by assets, plans to acquire a minority stake in mid-sized Chinese fund house China Post & Capital Fund Management Co, sources with knowledge of the deal told Reuters earlier this month.

In addition, at least nine overseas companies, including Taiwan's SinoPac Financial Holdings (2890.TW), Korea's Mirae Asset Financial Group and UK insurer Aviva Plc (AV.L) have unveiled plans to form China ventures.

"If you look at the China position, because it is such a rapidly growing market, there is a premium price if you can get into it," said Stewart Aldcroft, senior adviser of securities and fund services in Asia Pacific for Citigroup Inc.

In the latest deal, Power Corporation of Canada paid 1.784 billion yuan ($282 million) for a 10 percent stake in China AMC, the country's biggest fund house that manages around 180 billion yuan, valuing the deal at more than 8 percent of AUM.

In contrast, a unit of Singapore's DBS (DBSM.SI) in 2006 bought a 33 percent stake in China's Changsheng Fund Management Co for only 174.9 million yuan, or 2.7 percent of AUM. Valuations have been climbing steadily since, according to deals with publicly announced price tags.

"In a mature market, 3-4 percent is the norm but in a growth market like China you would expect it to be quite a premium on that and when there is limited availability, again, that's also worth a premium," Aldcroft said.

LIMITED SUPPLY

Obtaining new money management licences in China is often a lengthy and unpredictable experience. China's securities regulator granted only one licence in 2007, compared with eight in 2005, for unexplained reasons, which has led many foreign investors to turn to acquisitions.

But after the 2007-2011 buying spree by investors, including Italy's Assicurazioni Generali (GASI.MI), Japan's Nikko Asset Management Co and Dutch insurer AEGON (AEGN.AS), there are few targets left that are both healthy and up for sale.

"Getting anybody good in China is very difficult. If you had hundreds and hundreds of good managers available, then it would be easy but they aren't," Aldcroft said.

"Anybody who is doing well isn't going to be selling right now. It's a sellers' market so the prices are very high."

Morgan Stanley, for example, has bought into a struggling Chinese fund house after agreeing to pay 13 percent of AUM — a valuation level that analysts say reflects the Wall Street bank's eagerness to enter China as well as the distressed situation of the target company.

Foreigners also face competition from local bidders who have been seeking a stake in fund management companies in the hope that regulators would one day allow money managers to sell shares publicly, potentially boosting investors' returns.

"It's not clear when regulators would give the green light to fund house IPOs but there are some companies actively preparing for a listing," said Zhang of Z-Ben Advisors.

"And when it comes to deal pricing, the prospect of a listing has been taken into consideration."

(Editing by Jacqueline Wong and Muralikumar Anantharaman)

BOSTON – The stock market ended up going nowhere in 2011 despite a bumpy ride, and investors continued to hit the exits. For the fifth year running, they withdrew more cash from stock mutual funds than they put in.

Bond funds continued to attract new cash. It reflects that investors are risk-averse after the Standard & Poor’s 500 index produced an average annual loss of 1 percent in the last decade, including dividend income. Volatility remains a big fear, with the 2008 financial crisis still a fresh memory.

“People look at stock returns, and see they have been poor for the past decade, and they don’t want to play the game anymore,” says David Santschi, executive vice president with TrimTabs Investment Research.

In 2011, the S&P 500 index ended up almost exactly where it started the year, although it returned 2.1 percent factoring in dividends.

It was a market that investors continued to shun. They withdrew a net $85 billion from U.S. stock funds last year, industry consultant Strategic Insight said on Friday. The string of annual net withdrawals extends to 2007. Over that stretch, investors have removed a net total of $328 billion.

Bond funds have attracted about twice that much in new cash in just the past three years, including last year’s net deposits of about $116 billion.

Before the financial crisis of 2008, it was common for stock funds to take in twice as much new cash as bond funds in any given month. That pattern briefly returned a year ago, when stock fund coffers grew for four consecutive months to start 2011.

But that streak ended in May, and worries about slower economic growth and the European debt crisis mounted over the summer and fall. Economic news turned more positive in December, but it wasn’t enough get investors back into stock funds.

Strategic Insight said investors withdrew a net $24 billion from U.S. stock funds in December, the eighth consecutive month with more money flowing out than in. Bond funds attracted $13 billion in new cash in December.

Investors also retreated from funds investing in foreign stocks. Net withdrawals from those funds totaled $11 billion in December. Still, foreign stock funds ended the year with net deposits of $34 billion, reflecting expectations that China and other emerging markets such as India and Brazil continue to have good long-term prospects.

Americans’ recent caution about money extends beyond their investment decisions. Over the first 11 months of last year, net deposits into checking and savings accounts were about eight times as big as the net total flowing into stock and bond mutual funds and exchange-traded funds, TrimTabs said on Friday.

“The economy isn’t likely to get off to the races as long as investors are stuffing most of their money under the mattress,” TrimTabs’ Santschi said.

Since 2008, investors have been pulling money from stock funds even during periods when the market was recovering. Aversion to stocks has persisted despite low interest rates, which the Federal Reserve is maintaining as an economic stimulus. Those rates have encouraged borrowing, but make it nearly impossible to generate decent income from bank accounts and lower-risk segments of the bond market.

Still, not every investor is quite so anxious. Through it all, Justin Beal, of Clovis, Calif., has continued making regular contributions to an investment portfolio that’s 100 percent in stocks. The 38-year-old municipal fire inspector sold his bonds about three years ago, sensing opportunity in the stock market.

“At my age, I’ve looked at the market as a long-term buying opportunity,” Beal says.

After the market’s flat 2011 performance, Beal has recently been buying shares of companies that are selling at roughly the same price, or less, than they were at the start of last year. One of his current favorites is waste disposal company Waste Management Inc., whose share fell nearly 8 percent last year.

Beal’s parents, however, recently hit retirement age and are investing more cautiously, he said. That means cutting back on stocks, and shifting cash to bonds.

It’s a common move for many these days, as the oldest baby boomers hit their mid-60s.

“The boomers are taking a defensive stand,” Beal says, “because they just can’t afford that volatility.”

STOCK INVESTORS RETREAT: Investors withdrew $16.1 billion more than they deposited into U.S. stock mutual funds in November, industry consultant Strategic Insight said Monday. It’s the seventh consecutive month of net withdrawals, after stock funds attracted cash in the first four months of the year.

BONDS ATTRACT CASH: Investors deposited a net $11.9 billion into bond funds in November. Some $9 billion of the total went into taxable bond funds, and $2.9 billion into municipal bond funds.

OVERSEAS APPEAL DIMS: A net $2.6 billion was withdrawn from funds investing in foreign stocks, amid persistent worries about the European debt crisis.

BOSTON – Investors again withdrew cash from stock mutual funds in November during another volatile month in the market.

Industry consultant Strategic Insight said on Monday that investors withdrew a net $16.1 billion from U.S. stock funds last month. It was the seventh consecutive month of net withdrawals. Since May, a net $113 billion has exited stock funds.

Stocks finished November down less than 1 percent. But Europe’s debt crisis continued to drive volatility, and the Standard & Poor’s 500 index lost 9 percent in mid-November before almost fully recovering by the end of the month.

Investors last month also retreated from funds that invest in foreign stocks. Those funds had net withdrawals of $2.6 billion.

Bond funds continued to attract cash in November, nearly $12 billion in net deposits.

NEW YORK (Reuters) – U.S. securities regulators are closing a long-running investigation into allegations that two well-known hedge funds conspired to spread negative information about Toronto insurer Fairfax Financial, two people familiar with the inquiry said.

The Securities and Exchange Commission recently sent letters to lawyers for hedge fund managers Steven Cohen and James Chanos, advising them that the agency was terminating an investigation that began in fall 2008, two people familiar with the matter said.

The sources, who didn't want to be identified because the SEC hasn't made the letters public, said the termination letters were sent out a little over a month ago.

It is not unusual for securities regulators to notify parties in an investigation when an investigation is likely to conclude with no enforcement action – especially if the probe has gone on for a long time.

A spokesman for Cohen's $16 billion fund SAC Capital Advisors declined to comment. A lawyer for Chanos' $6 billion Kynikos Associates declined to comment as well. An SEC spokesman declined to comment.

The SEC investigation springs from a civil lawsuit Fairfax filed in 2006 in New Jersey state court, alleging SAC Capital, Kynikos and other traders took part in a so-called short conspiracy. The lawsuit, which is still ongoing, alleges the hedge funds bet against Fairfax shares and then spread negative stories about the company in hopes of driving down the stock price.

In early 2009, the SEC stepped up its investigation when it sent a subpoena to Fairfax's lawyers seeking copies of all emails and trading reports the hedge funds had turned over in the course of the civil litigation.

Last year, Fairfax's lawyer began taking depositions in the civil suit, including lengthy depositions of Chanos and Cohen. To date, only portions of those depositions have been made public.

Fairfax, speaking through its lawyers, declined to comment on the SEC action.

For Cohen, the SEC decision to end its investigation is a second legal win in the Fairfax fracas. In September, New Jersey Superior Court judge Stephan Hansbury dismissed Fairfax's claims that SAC Capital had participated in a short conspiracy.

The judge has yet to rule on motions to dismiss filed by Kynikos and other defendants.

Reuters, along with Bloomberg News, are intervenors in the civil lawsuit, seeking access to millions of pages of documents and depositions that have been sealed in the case. Reuters, for instance, is opposing a motion to keep sealed portions of Cohen's lengthy deposition in the dispute.

(Reported by Matthew Goldstein; edited by Jennifer Ablan and Bernard Orr)

NEW YORK (Reuters) – U.S. securities regulators are closing a long-running investigation into allegations that two well-known hedge funds conspired to spread negative information about Toronto insurer Fairfax Financial, two people familiar with the inquiry said.

The Securities and Exchange Commission recently sent letters to lawyers for hedge fund managers Steven Cohen and James Chanos, advising them that the agency was terminating an investigation that began in fall 2008, two people familiar with the matter said.

The sources, who didn't want to be identified because the SEC hasn't made the letters public, said the termination letters were sent out a little over a month ago.

It is not unusual for securities regulators to notify parties in an investigation when an investigation is likely to conclude with no enforcement action – especially if the probe has gone on for a long time.

A spokesman for Cohen's $16 billion fund SAC Capital Advisors declined to comment. A lawyer for Chanos' $6 billion Kynikos Associates declined to comment as well. An SEC spokesman declined to comment.

The SEC investigation springs from a civil lawsuit Fairfax filed in 2006 in New Jersey state court, alleging SAC Capital, Kynikos and other traders took part in a so-called short conspiracy. The lawsuit, which is still ongoing, alleges the hedge funds bet against Fairfax shares and then spread negative stories about the company in hopes of driving down the stock price.

In early 2009, the SEC stepped up its investigation when it sent a subpoena to Fairfax's lawyers seeking copies of all emails and trading reports the hedge funds had turned over in the course of the civil litigation.

Last year, Fairfax's lawyer began taking depositions in the civil suit, including lengthy depositions of Chanos and Cohen. To date, only portions of those depositions have been made public.

Fairfax, speaking through its lawyers, declined to comment on the SEC action.

For Cohen, the SEC decision to end its investigation is a second legal win in the Fairfax fracas. In September, New Jersey Superior Court judge Stephan Hansbury dismissed Fairfax's claims that SAC Capital had participated in a short conspiracy.

The judge has yet to rule on motions to dismiss filed by Kynikos and other defendants.

Reuters, along with Bloomberg News, are intervenors in the civil lawsuit, seeking access to millions of pages of documents and depositions that have been sealed in the case. Reuters, for instance, is opposing a motion to keep sealed portions of Cohen's lengthy deposition in the dispute.

(Reported by Matthew Goldstein; edited by Jennifer Ablan and Bernard Orr)

BOSTON – Surging stock prices in October weren’t enough to entice mutual fund investors back into the market. Instead, bonds continued to hold appeal.

Investors withdrew a net $17.6 billion from stock mutual funds last month, industry consultant Strategic Insight said on Friday. It was the sixth consecutive month of net withdrawals, which total $97 billion over that period.

October’s retreat came as the Standard & Poor’s 500 index returned nearly 11 percent, its best month since December 1991.

Last month’s exit from stock funds appeared to be a reaction to the market decline in August and September, when stocks tumbled more than 12 percent.

“After the ups and downs of recent months, investors seem to be suffering from volatility fatigue,” said Avi Nachmany, research director with New York-based Strategic Insight.

Stock funds attracted new cash during the first four months of this year, following last fall’s strong market gains. But investors have since returned to their old ways, pulling their money from stock funds and depositing it in bond funds. It’s a pattern that became entrenched after the 2008 financial crisis.

That more conservative investing attitude was again apparent last month, when investors deposited a net $20.8 billion into bond funds.

About $18.9 billion of that total went into taxable bond funds, a category that includes corporate bonds. It was the largest monthly flow of money into taxable bond funds since May’s figure of $20 billion. About $1.9 billion was deposited last month into municipal bond funds, which buy the debt of state and local governments.

Other details of how investors moved their money in October:

• Foreign stock funds: Investors withdrew a net $2 billion from these funds, amid persistent worries that European leaders will fail to get a handle on the continent’s debt crisis. Year-to-date, investors have deposited a net $47.8 billion into foreign funds, reflecting expectations that long-term growth prospects in fast-growing countries like China will support rising foreign stock prices.

• Money-market funds: A net $21 billion was withdrawn from these funds, which are designed to be safe harbors where investors can temporarily park cash and quickly access it when needed. Net withdrawals total $215 billion year-to-date. Money-market funds’ appeal has dimmed because returns have been barely above zero since early 2009.

• Exchange-traded funds: Investors deposited a net $19 billion into ETFs, which bundle together investments in a particular market index. Unlike mutual funds, they can be traded during daily sessions just like stocks. ETFs continue to grow much faster than mutual funds, with year-to-date net deposits of $94 billion. At that rate, ETFs are on pace to top $100 billion for the fifth year in row.

FLIGHT FROM STOCKS: Investors withdrew nearly $18 billion more than they deposited into U.S. stock mutual funds in October, industry consultant Strategic Insight said Friday. It was the sixth consecutive month of net withdrawals. October’s retreat came as stocks rallied, posting a return of nearly 11 percent.

BONDS DRAW CASH: Investors deposited a net $21 billion into bond funds. Nearly $19 billion of the total went into taxable bond funds, and $2 billion into municipal bond funds.

OVERSEAS APPEAL DIMS: A net $2 billion was withdrawn from funds investing in foreign stocks, amid persistent worries about Europe’s debt crisis.

WASHINGTON – The largest hedge funds and private equity firms must report financial information to the government under a rule adopted Wednesday. But the Securities and Exchange Commission backed off broader reporting requirements for the funds after it drew heavy objections from the industry.

The final rule applies to hedge funds with $1.5 billion or more in assets and private equity firms with $2 billion or more and requires only annual reporting by private equity firms. In January, the SEC proposed reporting for firms with $1 billion or more in assets and would have made the reports quarterly for both large hedge funds and private equity funds.

The new reporting is mandated by the financial overhaul law passed last year. Federal regulators will use the data — which will not be made public — to monitor the funds’ risks to the financial system.

Hedge funds are investment pools that use complex trades to seek big returns. They command trillions of dollars in assets and account for about 20 percent of all stock trading.

Private equity funds focus on buying and reselling companies. During the 2008 financial crisis, some hedge funds suffered huge losses and that contributed to the strain on financial markets, regulators said.

In final form, the rule also gives funds more time to file the reports than SEC initially proposed.

Hedge funds must make the reports within 60 days of the end of each quarter, and private equity funds must report within 120 days of the end of each fiscal year.

SEC Chairman Mary Schapiro said the changes made in the final rule “address issues” raised by those who submitted comment letters objecting to the proposal, while preserving the data’s utility.

Schapiro said fund leaders objected most strenuously to the frequency and deadlines for the reports.

“We want the information that will be reported to regulators … to be useful,” she said before the vote. “It will not be useful if it is rushed or incomplete.”

Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, told Schapiro in a letter last month that he was concerned the requirements in the proposed rule “will impose a heavy compliance burden (on the funds) that will harm economic growth, reduce investment opportunities” and crimp the flow of money through the financial markets.

The funds will submit the reports to the SEC and the Commodity Futures Trading Commission, which is expected to adopt the rule in a week or so.

The information will be used by the Financial Stability Oversight Council, a body of regulators created by the 2010 overhaul law to keep watch over the financial system.