A door which regulators helped open two years ago for mutual fund portfolio managers now is closing due to changes in employer demand.

Mutual fund companies' appetite for star portfolio managers has waned to the point where recruiting so-called "name" managers is the rare exception rather than the rule, according to a report issued last week by Russell Reynolds Associates, an executive recruiting firm. Russell Reynolds, the fourth largest executive recruiting firm, reported that it sought prominent managers in only one or two searches out of more than 200 the firm conducted this year for portfolio managers and senior level mutual fund company executives. That is a change from recent years when fund companies largely wanted high-profile managers who could serve as the subject of advertising and asset gathering campaigns, executives at Russell Reynolds said.

Mutual fund companies have found "they have a star. They lose the star. They have a marketing problem," said Susan B. Fowler, a managing director at Russell Reynolds in New York. "There is a much greater emphasis on building teams, moving away from the star manager."

The demand for management stars has declined despite regulatory changes that helped portfolio managers create their own star status. In 1996, the SEC eased requirements, enabling a manager with a strong track record at one mutual fund firm to take that record to another firm and promote it in fund prospectuses. Mutual fund company executives criticized the SEC ruling as creating a high-priced "free agency" among managers.

Fund company's diminished interest in high profile managers is driven in part by concerns about compensation, which far exceeds $1 million annually for top equity fund managers, according to Russell Reynolds. But it also arises out of fear that once a star is created, a firm is vulnerable to that star's departure.

"The move to teams is a security move for the company," said George Wilbanks, who along with Fowler serves as chief of Russell Reynolds' North American investment management practice.

Mutual fund companies helped create the culture of star portfolio manager beginning in the 1960s. Last year Barry Barbash, then the director of the SEC's Division of Investment Management, warned the fund industry that it risked its popularity with investors when the market turned bearish by creating stars and over-promoting performance.

The industry appears to have heard at least part of that message. Russell Reynolds, which describes itself as the largest executive recruiting firm for the investment management industry, said that fund management firms still look for managers with strong performance track records as indicators of success. But, rather than promote the so-called portable track records, they try to integrate the managers into teams which can build and potentially promote their group's performance, Russell Reynolds officials said.

The move toward teams may result in more portfolio managers who have achieved prominent status breaking away and starting their own firms, Russell Reynolds officials said.

At fund companies which have long advocated the team approach, team management may be taking on a new form. Putnam Investments, for example, converted from individual manager to team fund management in the mid-1980s at the direction of Lawrence Lasser, Putnam chief executive officer.

Then, earlier this year, rather than using teams on funds alone, Putnam organized its investment management group along global lines, putting managers together by investment category and style rather than by funds, said Laura McNamara, a Putnam spokesperson. Tim Ferguson, head of investments at Putnam, made the change after he joined the firm in January, McNamara said.

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