Necessity is the mother of invention, the old adage insists, and with improprieties abounding in the mutual fund industry, more and more firms are finding they need to forge new identities.

Pilgrim Baxter & Associates, one of the poster children for the fund trading scandal, is the latest firm to change its name as a result of intense regulatory scrutiny and negative press. The Wayne, Pa.-based fund complex last week announced it has switched its name to Liberty Ridge Capital in an effort to stem massive outflows following an investigation of trading abuses that led to the ousting of its two top executives.

The firm, which manages the PBHG funds, paid $100 million in June to settle civil fraud charges that it allowed preferred clients to trade in and out of its funds in a way that was harmful to its long-term shareholders. Founders Gary Pilgrim and Harold Baxter resigned as president and chairman just before New York Attorney General Eliot Spitzer and the Securities and Exchange Commission filed suit against them and the firm. The two men denied the allegations and are set to stand trial in federal court in February. No other key employees have left the firm as a result of the scandal, a spokesman for the company said.

"We've instituted significant reforms since the departure of Pilgrim Baxter's founders last year, and we're committed to providing our employees an opportunity to define a new identity for the firm," said Chief Executive Officer David Bullock in a release.

The new name is inspired by the firm's location on the Liberty Ridge hillside of historic Valley Forge, Pa., the company said.

The reforms Bullock alluded to include implementing a 2% redemption fee on most fund shares redeemed within 10 days of the initial investment, hiring KPMG to audit its controls and procedures and retaining outside legal counsel Shearman & Sterling to oversee its internal review of past trading practices.

"This really wasn't a surprise. After what they've been through, their brand equity is not so great," said Paul Herbert, a senior analyst at fund tracking firm Morningstar of Chicago. "I think the change was necessary." Morningstar lifted its "sell" recommendation on Pilgrim Baxter funds in July, advising investors to "proceed with caution."

Cash Crunch

The fund complex, a subsidiary of Old Mutual PLC of London, has taken a beating since last November, having lost nearly 25% of its assets under management with a net outflow of $1.3 billion, according to Financial Research Corp. of Boston. In August, the PBHG funds saw $315 million head for the exits but $258 million of it left its IRA Capital Preservation fund, which was recently morphed into a short-term bond fund due to suitability concerns.

With the founders gone from the company, it makes little sense for the company to retain the name. Still, experts believe that changing the name alone will not serve as a panacea for what ails the wounded fund shop, which was bleeding cash well before the scandal was uncovered due to performance issues.

"It is a step that was necessary for their survival but not sufficient for their survival," said Phil Edwards, managing director of global funds research at Standard & Poor's.

Liberty Ridge said it plans to keep "PBHG" as part of the moniker for its funds, which suggests the company isn't entirely prepared to start from scratch with its re-branding efforts. Old Mutual chose PBHG as its U.S. brand name just before the legal proceedings began last year, but it has since been dragged through the mud along with Baxter and Pilgrim. "To me, that's a very confusing branding scenario," said Darren Horwitz, manager of corporate communications and investor relations at Investors Capital Corp. of Lynnfield, Mass.

Horwitz cautioned that the firm's approach to cleaning up its image in the aftermath of the scandal may be putting form over substance. "This might have been done a little bit in haste to stop some of the bleeding," he said.

"There isn't enough information coming out from the company to validate that they're over the hump at this point. A renaming should come with a set of programs, an outreach to the investors, advertising, public relations and all types of marketing to show how they've made the transition and a movement for the positive," Horwitz said.

The Name Game

Changing names has emerged as a popular remedy for scandal-plagued firms in the mutual fund business, as a litany of fraud charges, negative press and shareholder outrage have sullied the reputations of many firms and sent investors fleeing for the exits. In September, Amvescap PLC dropped the Invesco name from all eight of its funds, opting to fold them under its AIM brand in the wake of its $451 million-market-timing settlement.

Last winter, the firm formerly known as PIMCO Equity Advisors switched its name to PEA Capital to distinguish itself from its renowned sister company PIMCO, the bond fund shop. PEA was slapped with $61.6 million in fines in two separate settlements for engaging in inappropriate market-timing activity. Bank One, which merged with J.P. Morgan earlier this year, announced that none of its funds will keep the Bank One name. Rather, they will merge with J.P. Morgan Funds or simply be re-branded under that name.

The success of a name change is difficult to quantify in terms of profitability, but in a sea of more than 8,000 mutual funds, companies may be able to shed some of the stink of the scandal by adopting a new name. For years, fund companies have been merging unsuccessful funds into more successful funds to erase names and track records. On the basis of communication and corporate ego, the "name game" is fairly significant.

But from a consumer perspective, based on the things that drive actual participation in mutual funds, the name has very little to do with it. "The creative shroud around the service makes a very small percent contribution to folks' consideration, adoption or loyalty," said Robert Passikoff, president and founder of Brand Keys, a New York-based marketing research and consulting firm.

A recent Brand Keys study showed there is no correlation between mutual fund flows and a name change. "It's purely a marketing issue and has very little effect in terms of how investors are going to behave in the marketplace," Passikoff said.

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