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Few fund managers walking the walk

June 17, 2008|Tom Petruno | Times Staff Writer

Chances are your mutual fund manager doesn't eat his own cooking.

A new report from Morningstar Inc. looks at fund managers' personal wealth in the funds they run, and concludes: "The number of managers showing no faith in their process is staggering."

In other words, relatively few managers invest their own money along with their shareholders' money.

Morningstar compiled the data over the last year or so from reports the Securities and Exchange Commission mandated beginning in 2004.

The SEC requires only that fund managers disclose the range of their personal holdings in their funds, and the ranges are pretty broad -- for example, $10,001 to $50,000, $50,001 to $100,000, $100,001 to $500,000, etc.

Still, it's enough to give shareholders a sense of how much managers have at stake in their funds -- or to show that often managers have nothing at stake.

Morningstar, which analyzed nearly 6,000 stock and bond funds, found that 47% of the U.S. stock portfolios had no manager ownership. The figure was 61% for foreign-stock funds, 66% for taxable bond funds, 71% for balanced funds and 80% of municipal bond funds.

Some industry executives have contended that it may not make sense for a manager to own shares of a fund he oversees, depending on the manager's own financial goals.

Russ Kinnel, Morningstar's director of fund research in Chicago, called that argument baloney, except in certain cases, such as when a fund invests only in one state's municipal bonds and the manager lives in another state.

He also said it would be reasonable for managers of niche funds to own less of their portfolios than managers of diversified funds own of theirs.

"True, higher investment levels aren't a guarantee of success or an ethical manager," Kinnel wrote in the report, "but at least they show that managers believe in the funds and they pay some of the costs and taxes that the rest of shareholders do."


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