108 / 708
10
The impact of redemptions on a fund company is less
obvious than at an individual fund, but still quite
real. It’s a challenge that is facing more fund compa-
nies than usual.
I pulled the
50
largest calendar years of outflows in
percentage terms to hit any fund company in the
past
20
years. Remarkably,
10
of the
50
came in
2015
.
The next biggest year was the bear-market year of
2008
, when five firms had big redemptions. (I limited
the search to firms that had at least
$5
billion in
assets to begin the year.)
The
10
biggest percentage drops in open-end funds
from
2015
had outflows that ranged between
17
.
8%
and
26
.
0%
in a single calendar year. Fund companies
can certainly rebound from such an event, and they
have, but it does present new challenges. Asset man-
agement is a high-profit, low-debt business, and
that means fund companies generally have some
slack before flows hurt them.
Marsico Capital is one firm that has suffered a slow
burn as redemptions and poor performance have
gradually eaten away at its standing and led to depar-
tures in investment personnel. Marsico had an
unusually high level of debt because of a
2007
deal in
which it bought control back from
Bank of America
BAC
. That’s what I meant in the cover story by
subtle effects.
More broadly, outflows can spur staff cuts, harm
a firm’s reputation, hurt performance, and make it
tougher for a firm to recruit top talent. Let’s take
a look at those that are most worrisome among the
10
suffering outflows.
Third Avenue’s
26%
outflow tops any firm over the
past
20
years. Having a fund in the headlines
because of a mismatch of flows and holdings liquidity
will do that to you. The firm faces an investigation and
changes at the top, and investors are fleeing the
rest of the firm’s funds besides the one that imploded.
The reasoning is fear that problems at the firm will
lead to big changes or possibly key departures at the
other funds. Third Avenue is owned by Affiliated
Managers Group, which is on solid footing itself,
though
AMG
generally takes a hands-off approach
with its investment boutiques. If you own a Third
Avenue fund, you should watch developments closely.
It’s tough to come back from a severely damaged
brand. Even before the scandal, manager departures
and poor performance had led us to downgrade a
number of the firm’s funds.
Wasatch shed about
19%
of assets, and that’s
a concern given its emphasis on small-cap stocks in
most funds. The good news is the firm endured a
sizable drop in assets under management a decade
ago but was able to keep its investment team intact
and rebounded nicely. Still, I worry when I see this in
small-cap land.
Longleaf Partners is owned by the managers of its
funds along with some other employees, so the firm
is pretty well insulated from short-term issues.
If it were publicly traded you can be sure that changes
would be forced on the team. Still, it’s enduring its
worst performance slump ever and has seen
24%
in
outflows. I think Longleaf can withstand more, but
what it really needs is a rebound in fund performance.
Calamos
’
CLMS
outflows come at a bad time for the
publicly traded firm. John Calamos Sr. was thought
to be handing over the reins to Gary Black until the
two parted company. Now there is a pretty big hole
in transition plans at a time when performance has
been poor and investors are leaving in droves. The
firm saw
18%
of
AUM
go out the door in
2015
.
K
Fund Companies Under Fire
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to
find overlooked funds that may
be ready to rally.