Americans did not wake up at the beginning of the 1990s and decide to run with the bulls. A combination of collectively innovative minds brought the power of mutual fund investing to the American public.
In celebrating the publication's 10th anniversary in this special year-end issue, the editors of Mutual Fund Market News have selected 10 individuals who have made the greatest contributions to the mutual fund industry over the past 10 years.
Each of the following 10 gentlemen has distinguished themselves, their affiliated firms and the industry over the course of their careers - and in so doing, have benefited the investor. Whether they helped create a new investment vehicle, a grand stage on which it can be played, or simply the tools by which mutual funds can be measured, each of the following 10 has made tremendous contributions.
Thomson Media's Mutual Fund Market News salutes the following executives for their unconventional thinking as well as their grasp of competitive subtleties that have set both their firms, and themselves, apart.
Legends*
(In alphabetical order. Selected by the editors of Mutual Fund Market News.)
Ted Benna
John C. Bogle
Robert L. Goldberg
Bill Gross
A. Michael Lipper
Peter Lynch
Don Phillips
Paul F. Roye
William F. Sharpe
Charles R. Schwab
Ted Benna
Father of the 401(k)
When studying a company's retirement plan back in the 1970s, Ted Benna discovered what would otherwise just have been another impenetrable IRS clause: the 401(k). By applying his own ideas about an employer-matching contribution and employee pre-tax payroll deductions, Benna came up with a retirement savings vehicle that, as all of the "Legends" here readily admit (including Benna himself), has been one of the key drivers of the mutual fund industry's great success.
Benna, president and founder of the 401(k) Association, was awarded the National Jefferson Award at the Supreme Court in 2001 for "greatest public service by a private citizen." Benna says making the 401(k) come alive was "responsible for making Fidelity, Vanguard and Janus household names.
"The impact goes far beyond the money that has gone into 401(k)s" to IRAs, 529s and the entire philosophy of saving for one's future, Benna says.
The industry is at a critical juncture, Benna continues:
"My biggest hope is that the fund industry will help to restore investor confidence so that workers will continue to save for their retirement.
"We are all dependent upon a strong economy and healthy stock market for our future economic well-being. Another year or two of negative returns is likely to have a lasting adverse impact, putting the retirement of many workers at risk."
John C. Bogle
"My life has been built on trying to do the best I can, every day."
Fifty-one years ago, John C. Bogle's Princeton senior thesis became the genesis for the first index mutual fund. In fact, Bogle did more to advance the mutual fund industry by founding Vanguard in 1975, 51 years after the fund industry's very beginnings in 1924, than anyone before his time, and he has continued to make vast contributions to the industry in the 51 years since that original senior thesis.
Today, the former chairman of Vanguard's longtime call for better shareholder servicing has never seemed more timely or cutting edge.
Here's what Bogle has to say about the greatest developments of the past 10 years, his role in that, how he'd like to see the industry changed, and what the "lightbulb" was that went off in his mind to lead him to all of this:
"The great bull market made Americans believe that mutual funds were a way to substantially build their retirement funds particularly rapidly. Compared to the $278 billion in equity fund cash inflows in 2000, the $40 billion in outflows this year is only a tiny bit. We have the great bull market to thank for that.
"I hope this industry will change from merely making money for themselves to making money for their clients, trustees and fiduciaries, and to embracing the current regulatory campaign for more transparency.
"But the only thing that will cause this industry to truly serve its principals, the investors, is the awareness of investors, not the SEC, not Wall Street, and certainly not the fund industry.
"It is certain to happen, but I fear it will take a long time.
"My three greatest achievements have been creating the index fund, remaking Wellington and creating Vanguard, and trying to make sure the investor gets a fair shake."
Don Phillips
Analyze This
Besides being one of the first people to join Morningstar, in 1986, which, through its star rating system has arguably created the most understandable tool for gauging funds, Don Phillips, managing director, also is the architect of Morningstar's ubiquitous style box.
"If you turn back the clock 10 years ago and looked at the fund names - Magellan, Windsor - they were lyrical and a tad poetic, but they didn't tell you a whole lot about how the money was managed," Phillips recalls.
"My hope is that the fund industry moves beyond good fund vs. bad fund' to select funds that are truly appropriate for a given investor, which means more truth-in-labeling and transparency.
"It strikes me that that is the crux of investing: getting people into the right funds for the right reasons.
"I would like to see the industry retain its spot as the investment vehicle of choice for investors."
Charles R. Schwab
The Producer
What would the cast of thousands of mutual funds be without a stage on which to act? By creating the first fund supermarket with true mass appeal back in 1971, Charles R. Schwab brought the world of fund investing to millions. You could call Schwab the Louis B. Mayer of the fund world.
"More choice and easier access together fueled the tremendous growth of mutual-fund investing," says Schwab, founder, chairman of the board and co-CEO of The Charles Schwab Corp.
"It's easy to forget that a decade ago, the industry seemed headed for consolidation. In that world, success would have sprung from marketing and distribution more than from investment excellence. Luckily, investors flocked to open architecture models. The result has been a more diverse, vibrant industry."
A. Michael Lipper
Analyze This
"Reading the Invest-ment Company Act of 1940 and realizing the power of independent directors" led A. Michael Lipper, in 1973, to found Lipper Analytical Services, a Reuters company. "There were other people who did work on investment performance, but mostly to help sell fund shares," Lipper says. "At the time, there was no one focusing on the need of fund boards to look at and analyze fund fees and expenses." The key for the funds looking ahead will be finding the right balance for fees and allocating revenues smartly between the development of products and people, he says.
Peter Lynch
Beating the Street
You don't have to own a mutual fund to be familiar with the distinguished, white-haired Peter Lynch. Even those oblivious to the fact that during his 13 years of managing the flagship Fidelity Magellan fund through 1990, the fund returned an average 29% and grew from $20 million to $14 billion to become the then best-performing fund in the world - Lynch is the face of mutual funds.
By telling investors to invest in what they know, finding such success in growth and recovery stocks - and making investors so much money with a 13-year-run of 2,700% -- Lynch's tremendous contributions to Fidelity Investments have had far greater ramifications for the fund industry as a whole.
Lynch, who joined Fidelity as a summer student in 1966, says, "mutual funds have helped to democratize investing."
He is vice chairman of the firm.
Bill Gross
Mr. Bond
You could call him Gross, Bill Gross, because he is the Mr. Bond of the mutual fund world. Whether an investor has a pension or a portfolio including bonds, it's more than likely they know the name, as Gross oversees $300 billion in fixed-income securities. It's also one of the reasons his market commentary is almost as closely watched as Alan Greenspan's.
A founder of Pacific Investment Management Co. (PIMCO) 32 years ago, Gross says one of the proudest achievements of his career came earlier this year, "when the $66 billion PIMCO Total Return Fund became the largest mutual fund in the world. We never set out to be the biggest, only the best."
As for the future, the PIMCO managing director says he hopes "funds reduce expenses so that investors can take home a larger share of the pie." On his resounding success: "The one running theme I've always stuck to - and it proves itself over and over - is that investing should be viewed with a long-term perspective."
Paul F. Roye
Law and Order
Fair but firm, Paul F. Roye, director of the division of investment management at the Securities and Exchange Commission, has gained the respect of executives in the mutual fund industry, all the while he and the two, soon to be three commissioners under whom he has served, have waged the strongest reforms in the industry's history. Making funds more understandable and more clearly priced for investors have been two leading initiatives of Roye.
"The fund industry's commitment to trying to avoid the abuses that have plagued other areas in
our financial markets," is the biggest development that has bolstered the fund industry in the past 10 years, Roye says. "I would hope that the fund industry would strive to maintain its record of honesty and integrity in dealing with fund investors.
"The independent directors initiative the SEC adopted in January 2001 and the after-tax disclosure requirement were two high points," he says.
Unlike other directors who have held Roye's post and then moved on to prestigious law firms, Roye is a dynamic regulator more likely to move to another government post. In fact, Roye is man worth watching.
Robert L. Goldberg
Back-Office Brains
During the 11 years that Robert L. Goldberg served as president of the National Investment Company Service Association (NICSA) through 2001, the securities industry moved from T+5, or trade plus five settlement days, to T+3; faced the potential apocalypse of Y2K; and moved from serving a few million fund shareholders invested primarily in straightforward equity funds to 77 million invested in highly specialized, diversified fund portfolios.
Goldberg, now managing director of Acadient, a mutual fund advanced-learning organization, says his proudest achievement was educating fund IT executives and growing NICSA from a New York/Boston trade association to the international, best-practices organization it is today.
"The ultimate beneficiary of all this knowledge is the shareholder," Goldberg says.
William F. Sharpe
Taking No Chances
"Not surprisingly, receiving the Nobel Prize in Economic Sciences was the most satisfying event in my career. In awarding prizes to myself, Harry Markowitz and Merton Miller, the Nobel Foundation provided overwhelming evidence that financial economics is a legitimate scientific field,," says William F. Sharpe, developer of the Sharpe Ratio, a tool to help investors develop a risk-efficient portfolio.
By helping investors reduce the risk levels in their portfolios, Sharpe helped bring the world of mutual fund investing, which in its early days only appealed to the affluent, to a broader swath of Americans. "Investors need help so that they can use funds efficiently," says Sharpe, founder and chairman of Financial Engines and a Stanford University professor emeritus who began teaching at Stanford in 1970.
