The board of trustees of Berger Financial Group of Denver is like a contestant on "The Dating Game," auditioning potential suitors to try to determine who is worthy of its $1 billion management contract.
So far, a handful of hungry potential managers have stepped up and thrown their hats into the ring to manage some or all of nine Berger funds. These include four domestic growth, one balanced fund and three international funds, and the standout Berger Information Technology Fund, which has lost more than 46% of its value year-to-date. All but one of the Berger funds are in the third or fourth percentiles year to date, according to Lipper of New York.
Contestants now include American Century Investments of Kansas City, Mo., Cambiar Investors, Fred Alger Management of Jersey City, N.J., Turner Investment Partners of Berwyn, Pa., and, last but not least, star sister firm Janus Capital Corp., also of Denver.
On Sept. 3, Stilwell announced it was merging its various money management units under Janus Capital's control, disbanding Stilwell, and entirely doing away with the Berger brand of funds [MFMN 9/9/02]. The restructuring is expected to be completed early next year.
Simultaneously, Berger announced via an SEC filing that as part of the restructuring undertaken by 87% majority owner Stilwell, it would consolidate four of its value-oriented funds into Janus' funds and would consider bidders for the nine remaining funds.
The independent Berger Fund trustees are in the power position, entertaining bids and proposals from interested fund groups. The Berger board of directors includes six independent trustees. Jack R. Thompson, president of Berger Funds since May of 1999, is the sole affiliated board member. The board has begun considering managers, but has not tipped its hand as to who the winning bidder might be.
The Berger trustees, however, made it crystal clear in the September SEC filing that neither Janus nor Stilwell would have a voice in determining the new manager.
While the back office and marketing functions at Berger are currently being merged into Janus, Stilwell executives aren't pressuring Berger board members to reach a snap decision. "We await the decision of the Berger trustees on how the investment management part will be accomplished," said Landon H. Rowland, chairman and president of Stilwell in an earnings statement teleconference last Wednesday. "We don't presume to give them a timeline," he added. However, he noted that the board is holding discussions this quarter and a decision is likely to come before year-end.
Stilwell can only be anxious to have the restructuring finalized. Rowland also revealed in the conference call that the primary reason why his firm's assets fell 19% in the third quarter and its net income dropped $131.2 million, versus a $26.8 million gain a year earlier - is because of the restructuring.
American Century spokesman Chris Doyle confirmed that his firm had sent a "letter of inquiry" to the Berger trustees, just trying to get some more information. He declined to offer further comment or note whether American Century was interested in one, some, or all of the Berger Funds.
Turner Investment Partners' spokeswoman Doff Meyer also confirmed her firm had made a proposal to the Berger Funds' trustees, but declined further comment, as well. Janus spokeswoman Jane Ingalls confirmed that her firm was one of the bidders. Calls to both Berger and Alger were not returned by press time.
Match in Heaven
As one of the bidders, Cambiar Investors' officials believe that their taking over the management of the Berger Growth Fund, Berger Large Cap Growth Fund, and international funds would be a match made in heaven.
Cambiar, also a Denver denizen, whose office is literally across the street from Berger's, hand delivered its management proposal to the Berger board two weeks ago, before it even knew any other firms had placed bids, said Nancy Wigton, director of marketing.
Cambiar, an independent money manager since 1973, is hoping to merge the Berger growth funds' assets into its own large-cap institutional Cambiar Opportunity Fund, which has current assets of $26 million and has employed a relative-value strategy since its July 1998 inception.
Cambiar also wants to snare Berger's international fund assets and merge those into its brand-new Cambiar International Fund. The fund was converted into a mutual fund in September after beginning life as a co-mingled fund. The win would help Cambiar jumpstart the mutual fund's growth with a significantly bigger asset base, agreed Wigton.
Barish & Berger, Together
Berger and Cambiar are no strangers. In the 1960s, Cambiar's founder, Michael Barish, worked alongside Berger Funds' founder, the late Bill Berger, at Financial Programs, a predecessor company to INVESCO. Both were equity analysts at the firm, and each went on to found their own investment management firms.
Right now, it's up to the Berger trustees, who must do extensive due diligence to choose the perfect match for those Berger funds.
That board work includes an in-depth, three-part assessment, said C. Meyrick Payne, managing partner of Management Practice, a mutual fund board consulting firm in Stamford, Conn. The board must consider how the new manager will manage the money, raise the money and then process the money, he said. "You have to be good at each one. It's no good to just be good at one," Payne added.
Berger's board trustees must evaluate the investment philosophy and track the record of each manager candidate, the investment staff, research resources and investment executives' tenure. In addition, they need to take a studied look at the number of funds, and share classes they now manage and the investment performance, Payne explained.
Berger's independent trustees also have to determine if a potential new manager's technological portfolio and operational systems mesh with Berger's, what channels the Berger funds could be sold through under the new manager, as well as how the new manager's transfer agency and securities custody is handled.
Last but not least is for the board members to be certain to identify candidates' past or pending SEC enforcement actions or lawsuits, if any, he added.
But the board doesn't have the final say. Once the Berger board has chosen a likeable candidate as new investment advisor, the Berger Funds' shareholders will have to vote their approval.