NEW YORK — The travails of the financial markets could hurt mutual fund investors in more ways than one.
In addition to slashing the value of your portfolio, the bear market also has taken a pound of flesh from the companies that manage your mutual funds.
That normally wouldn't be a cause for you to be concerned, but it could become one if the industry's troubles linger.
A protracted downturn, some experts say, could mean higher fees, fewer funds to choose from and possibly the downsizing of the companies' investment research departments.
"The market's problems have become the fund industry's problems, and that can blow back on investors," said Russ Kinnel, research director at fund tracker Morningstar Inc.
Until 2008, the fund industry enjoyed years of steady growth thanks to ballooning stock prices and growing investment in 401(k) retirement accounts.
But the upheaval in the stock and bond markets has left fund companies grappling with sharply reduced revenue, record investor redemptions and a sudden apprehension among clients about the financial markets.
Through November, investors yanked a net $151 billion from mutual funds last year, the first year with a net outflow in the 11 years that Morningstar has compiled the data.
Coupled with the plunge in stock values, the redemptions pushed the industry's assets under management below $5 trillion in November from $8.2 trillion in October 1997, according to Morningstar.
Given that fund-company revenue is tied directly to assets, "the industry has just taken a 40% pay cut," said Lou Harvey, president of research firm Dalbar Inc. "It's pretty devastating."
As a result, shares of asset management companies have been beaten up even more than the overall market.
Janus Capital Group Inc. is down 72% from its peak last year. Mario Gabelli's Gamco Investors Inc. has slumped 56%. Even industry stalwart T. Rowe Price Group Inc. is off 51%.
Many companies, including Janus, Fidelity Investments and Franklin Resources Inc., have responded to shrinking revenue by cutting jobs.
Management firms are suffering most immediately with their money market funds, which have been hurt by falling interest rates -- especially funds that invest in U.S. government debt.
As rates have tumbled, some firms have been forced to reduce fees to prevent money-fund returns from turning negative.
Other companies have limited new investments in Treasury money funds.
