$1.6 billion more pulled from Strong
Total since Spitzer’s accusations: $4.5 billion
By THOMAS CONTENT [email protected], Journal Sentinel
Saturday, January 10, 2004
Mutual fund shareholders pulled $1.6 billion from Strong Capital Management Inc.’s funds in December, bringing to $4.5 billion the amount that has exited the Menomonee Falls investment management company’s funds in the past four months.
Meanwhile, Wisconsin investors took advantage of new investment options in the state’s EdVest college savings plan in December: The number of accounts investing in Strong funds dropped by nearly 1,000 even as the overall number of EdVest accounts rose by nearly 10,000.
The $1.6 billion pulled from Strong’s investment funds in December was slightly less than the $1.97 billion investors withdrew in November, the first full month after New York Attorney General Eliot Spitzer publicly targeted Strong founder Richard S. Strong in a market-trading investigation.
The $4.5 billion pulled from Strong funds since allegations of improper trading were first reported represents roughly 10% of the firm’s assets under management.
While smaller than in November, the December outflow is still significant, said Paul Herbert, a mutual fund analyst at Morningstar Inc. in Chicago.
The scandal had been nebulous for investors in September and October. At that point, Strong Capital Management was implicated by Spitzer for giving a New Jersey hedge fund special opportunities to trade in Strong funds that other shareholders didn’t have.
But Spitzer’s public targeting of Richard Strong — who ultimately stepped down from the company, which is now evaluating offers from potential buyers — “put a face on it,” Herbert said.
“And when it’s the same person that’s writing the shareholder letter you’re receiving every year, it just signals to people that maybe this is the time to go,” Herbert said. “The trust issue was really important in people’s minds.”
Strong spokesman Drew Wine-land declined comment.
College program growing
The state’s college savings program, meanwhile, enjoyed its second-best month ever in December, as investors took advantage of three new investment choices that were offered. Until then, investors in the EdVest program had no choice but to have Strong manage their accounts.
“We’re thrilled,” state Treasurer Jack Voight said.
The EdVest program saw a $53.5 million increase in investments last month, with new non-Strong investments accounting for nearly 90% of that growth.
The non-Strong mutual fund options were added after negotiations with Strong, which will continue to receive a fee for administering them.
Clearly, the Strong investigation wasn’t the only reason for the portfolios to grow, Voight said. The broader returns in the market contributed to the gains, as did the end-of-year rush to open the education savings accounts in order to qualify for deductions on 2003 income taxes.
The mutual fund scandal that has enveloped Strong brought major changes to the EdVest program.
“These allegations created opportunities for investors in Wisconsin to have more investment choices, plus the fees on these (investments) have been reduced,” Voight said.
Strong’s mutual funds offered through EdVest enjoyed a net gain in assets of $6 million in December, compared with a gain of little more than $3 million in November. But non-Strong investments surged in December, with a gain of $53 million as Vanguard, Legg Mason and Robert W. Baird & Co. were added as investment options for Wisconsin residents.
In terms of EdVest accounts, Strong lost 964 accounts during the month, while the companies offering new investment choices opened 10,037, according to data provided by Voight.
The biggest winner: Vanguard, which saw $20 million invested in December in its balanced portfolio, as well as an $18 million gain in its index fund after that fund was converted from a Strong index portfolio in mid-December. At the end of December, Wisconsin residents also had $7.4 million with the Legg Mason aggressive portfolio and $1.3 million with Baird’s bond option.
Assets invested with Strong gained $15 million during the fourth quarter, he added.
The state’s education investment program includes both the EdVest program and the Tomorrow’s Scholar program. In total, the state’s two programs finished 2003 with $1.1 billion in assets and more than 175,000 accounts.
