We visit scores of fund companies each year. We
talk with managers, traders, analysts, executives,
compliance officers, and more in order to understand
the culture and the talent pool.
We’re interested in the rest of the fund company
because a fund is much more than a single manager.
Executives who might not be fund managers might
play a key role. Compliance officers, analysts, traders,
and even marketing and sales people are important
to understanding how a fund company works.
Typically, we’ll spend a full day at a fund company
as there’s lots of ground to cover. Our fund company
research is led by Bridget Hughes, who heads the
parent rating committee responsible for the Parent
score featured in every fund’s Morningstar Analyst
Rating. Bridget and the analysts covering a fund
company generally get out to visit all of the top
20
fund companies each year. (In Research on Page
8
,
Katie Reichart shares some key take-aways from
recent visits to Fidelity and T. Rowe Price.)
As head of the Analyst Ratings committee, I’m inter-
ested in those giants, but I’m also interested in some
of the smaller firms where we have some highly rated
funds. In recent months I paid a visit to three firms
where the leader was near retirement age and perfor-
mance had suffered some hiccups. I wanted to dig
deeper to understand the challenges faced, the
plans for succession, and the strength of the roster
behind the founder.
I visited Montag
&
Caldwell in August, Longleaf Part-
ners (aka Southeastern Asset Management) in
October, and Royce in November. None of the three
firms’ leaders have any plans to retire, but they
are either at or past the typical retirement age, so
succession is important.
One common theme I took away was the impor-
tance of the right ownership structure in ensuring the
passing of the torch will work well. Sales of fund
companies can go very wrong. When SocGen tried to
sell
TCW
, it became a debacle, as a power struggle
with Jeffrey Gundlach cost the firm its top manager.
More commonly, a fund firm will sell itself to another
only to see that one merge and merge again. For
example, Wanger (Acorn) sold itself to Liberty, which
then sold itself to Columbia, which then sold itself
to RiverSource, which adopted the Columbia name.
Along the way, some sales folks well outside of
Wanger’s control allowed some market-timing at
Acorn funds. Long story short, ownership is a big deal.
Maybe the Best Ownership Structure
What do the best fund companies have in common?
Many are employee-owned with a provision that
departing employees must sell their shares back at
a set multiple. This ensures that those owning the
most shares can’t sell to a third party in order to max-
imize their returns. That promotes stability while
giving the next generation of investors at the firm
healthy incentives to stick around and act in the
firm’s long-term interests.
Consistent Strategies,
Bumpy Returns
Fund Reports
5
Meridian Growth
PIMCO Global Multi-Asset
PIMCO Total Return
Morningstar Research
8
Updates on Fidelity and
T. Rowe Price
The Contrarian
10
Cash Is Your Friend
Red Flags
11
We Downgraded These Funds
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
IRA Mysteries Revealed
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
FundInvestor 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel,
Director of FundResearch and Editor
FundInvestor
December 2013
Vol. 22 No. 4
Research and recommendatio s for the s riou fund investo
SM
Continued on Page 2
