Nations Funds, the mutual fund group managed by Bank of America Capital Management (BACAP), has given its team-managed approach the boot, at least on its two dozen fixed-income funds.
In a Nov. 17 filing with the Securities and Exchange Commission, the group announced that it has already begun transitioning the management of its Nations Funds fixed-income lineup from the collegial team approach to having a single manager preside over each fund. Only three of the 24 funds will remain with more than one manager, and in some cases, a single manager will now have sole responsibility for managing multiple funds.
Wendy Norman, for example, a vice president and senior municipal portfolio manager with Columbia Management, the primary investment management division of BACAP, will end up steering five bond funds, while Chris Eckstrom, also a vice president and a senior municipal portfolio manager, will be in the driver's seat of eight funds.
Right now, Nations Funds is focusing the management transformation on its bond funds and doesn't plan to take the same approach with its equity mutual funds, all of which are currently either sub-advised or collectively managed by internal portfolio teams such as the "quantitative strategies group," the "growth strategies team" and the "value strategies team."
Executives at Nations Funds were unavailable to address this issue by press time. But according to Nations Funds' spokeswoman Donya Hengehold, the transition of the day-to-day management of these funds to a specific portfolio manager is consistent with how Columbia Management manages their fixed-income funds, and was part of the plan announced last spring to "achieve efficiencies." Columbia Management includes the collective mutual funds that were merged under FleetBoston, which Bank of America acquired this past April.
The debate over whether a mutual fund should be managed by committee or at the hand of a single manager is not new. Over the past several years, many funds have steered away from having one potential "star" manager control a fund for fear that if that manager should leave, investors would also bolt.
"Five to 10 years ago, the single-manager concept got a bad rap," agreed Jeff Keil, vice president at Lipper of New York. "Lots of shops hung their reputation on one star manager." Then the team concept came into vogue. But while some fund groups claimed that a team was managing the fund, in reality, there was only one person calling all of the shots, he added.
What is more, in many cases, once a fund group adopts a team management approach, it is allowed to operate behind a veil of secrecy, as SEC regulations do not require team members to be individually identified to investors in fund documents.
Voluntary disclosure of portfolio team members is rare. Still, it has become a staple of the very successful American Funds, managed by Capital Research & Management of Los Angeles, which often employs "multiple counselors" to run its funds, noted Rosanne Pane, mutual fund strategist with Standard & Poor's in New York.
Team-managed critics grouse that such unidentified committees often become training grounds for inexperienced managers to secretly cut their teeth managing assets. They also complain that without a clear portfolio leader, no one person can be held accountable for poor performance, or rewarded for stellar returns. Moreover, they claim that funds' use of teams or committees is often used to mask high fund manager turnover.
Of course, the single-manager approach is still preferred by many smaller, niche fund shops, as well as behemoth Fidelity Investments of Boston, although several analysts may work with each manager.
"I don't know if the star manager idea is really much of an issue any more," said Tom Westle, a partner with the law firm Blank Rome in New York. Many funds have come to realize that even if their sole manager leaves, investors won't necessarily leave in droves, he added.
The industry is divided on which approach is the best for a fund and its investors.
"I think that team-managed funds were invented as a response to the mercenary nature of the business," said Adam Bold, founder and chief investment officer of The Mutual Fund Store franchise. Bold will only invest client assets in funds run by a single manager or duo managers. "I believe that there are a limited number of great managers. What are the chances that all will end up on a single team?" he asked.
But a single manager can be a detriment. "We like to see more than one [fund] manager so that if a person leaves, there is a senior person providing sufficient back-up," said Pane of S&P.
New Team Rules
This past October, the SEC peeled the veil from the team-managed model. The regulator finalized rules requiring deeper disclosure about individual portfolio managers and up to five team or committee members with primary responsibility for managing a mutual fund. The regulations take effect on Feb. 28 and will require each primary manager to be individually identified and their background disclosed. In addition, the methods used to compensate each, but not their exact compensation, will have to be noted, as will how much they personally own in the fund they manage and whether they also manage other funds, accounts and/or products such as hedge funds for that same investment advisor.
While it is too early to judge how those new rules might affect the single-manager versus team-managed models, some expect some changes to be visible.
"The new regulations will force a disaggregation of teams into individuals," said Keil of Lipper. This may eventually reveal whether the team-managed model is really a facade, he added.