Virtus Investment Partners Inc.

Robbins LLP: Virtus Investment Partners, Inc. (VRTS) Stock Declines on Announcement That Its Key Sub-Advisor Is Being Investigated by the U.S. Securities and Exchange Commission

Robbins LLP announces that it is investigating the officers and directors of Virtus Investment Partners, Inc. (NASDAQ: VRTS), a publicly owned investment manager that services individual and institutional clients. Robbins LLP is looking into the fall-out to Virtus as a result of the announcement that the U.S. Securities and Exchange Commission (SEC) had issued a Wells notice against F-Squared Investments Inc., a key sub-advisor on a number of popular Virtus funds. The issuance of the Wells notice indicates that the SEC is closer to recommending charges against F-Squared.

F-Squared’s Actions Could Negatively Affect Virtus

F-Squared is the largest builder of portfolios made up of exchange traded funds, and sub-advises on five Virtus mutual funds (Premium AlphaSector (VAPAX), Allocator Premium AlphaSector (VAAAX), AlphaSector Rotation (PWBAX), Global Premium AlphaSector (VGPAX), and Dynamic AlphaSector (EMNAX)) representing about $13 billion, or one-fifth, of Virtus’s assets under management. According to Surinder Thind, an analyst at Jefferies, during the first six months of 2014, the two largest F-Squared-managed Virtus funds took in about $885 million of the firm’s total $1 billion in retail new investments.

On September 3, 2014, The Wall Street Journal reported that F-Squared received a Wells notice from the SEC. The SEC probe centers on how F-Squared advertised the performance of quantitative U.S. stock strategies, and whether they were tied to real money, from April 2001 through September 2008. Following this report, Virtus’s stock fell 7.7% on September 4, 2014, and almost 10% on September 5, 2014 – the biggest one-day drop in nearly three years – to $184.52.

Mr. Thind predicted that the investigation of F-Squared would negatively impact Virtus: “While VRTS is not subject to the SEC investigation, headline risk remains and any potential negative outcome for F-Squared could flow through to VRTS and negatively impact AUM and flows. Any negative outcome for F-Squared (e.g., reputational damage) has the potential to also negatively impact VRTS (e.g., VRTS clients shy away from F-Squared products).” Indeed, Raymond James Financial Inc. and Stifel Financial Corp. have prohibited financial advisors from opening new accounts or placing additional client money into Virtus’s AlphaSector mutual funds.

Damage to Virtus continued when Howard Present, F-Squared co-founder and chief executive officer who managed the AlphaSector mutual funds, stepped down on November 14, 2014. After news of Present’s resignation, shares of Virtus dropped 9.9%. According to data from Morningstar, four of the AlphaSector funds saw outflows during October, including $90 million in withdrawals from the $7.6 billion Virtus Premium AlphaSector fund.
Virtus has been on notice since last year that F-Squared was being investigated by the SEC, and in May 2014, the company again told its clients that regulators had found its historical data returns overstated performance. Specifically, the SEC found that performance from April 2001 to September 2008 wasn’t tied to any money, and the advertised returns for its AlphaSector U.S. stock strategy was “systematically incorrect” and thus “clearly overstated” before October 2008.

Virtus Shareholders Have Legal Options

Concerned shareholders who would like more information about their rights and potential remedies can contact attorney Darnell R. Donahue at (800) 350-6003, or you can complete the form below and we will contact you directly.

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