Dec. 5–Mutual fund shareholders pulled nearly $2 billion out of Strong Capital Management Inc. in November, suggesting an increase in the rate at which assets are leaving the firm.
Strong, which manages about $40 billion of investor money, had net outflows from its funds of $1.97 million last month, Drew Wineland, a company spokesman, said Thursday. That’s more than double the $933 million that exited Strong’s funds during the months of September and October combined.
Outflows represent the difference between the amount of money that came into the funds and the amount withdrawn.
Wineland declined to comment about how much more money may have been yanked from Strong’s non-mutual fund accounts.
The withdrawls from Strong began shortly after Sept. 3, when New York Attorney General Eliot Spitzer first implicated the firm for giving a New Jersey hedge fund special opportunities to trade in certain Strong funds that other shareholders didn’t have.
The new numbers suggest those outflows invested deposits and with picked up dramatically after Spitzer’s office on Oct. 29 said it planned to take action against company founder Richard S. Strong personally, based on allegations of improper short-term trading of his company’s mutual funds.
“To make an obvious point, it seems like people were reacting more to the public face of the company’s alleged misdeeds rather than market timing transactions it was difficult to pin to anybody,” said Paul Herbert, a mutual fund analyst at Morningstar Inc. in Chicago.
“The face on the company is one of the faces of the scandal that’s burning people’s brains right now,” Herbert said.
Strong, who is 61 and founded the firm in 1974, on Tuesday resigned from his position as chairman, chief executive officer and chief investment officer of Strong Financial Corp. Strong Financial, which employs about 1,300 people, named investment banker Kenneth Wessels as its new chairman and chief executive officer.
A day later the company confirmed it had hired Goldman Sachs to explore options that include putting the firm — which Richard Strong owns about 90 percent of — up for sale.
Will Strong’s departure help slow the outflows?
“That could help, I think, in the institutional space as a signal the company is doing something compared to before, when you had the sense they didn’t know what to do or they weren’t sure which direction to go in,” Herbert said.
He isn’t as certain Strong’s resignation will slow the rate at which retail fund investors are pulling money out.
“Maybe there’s some way this could restore their trust in the company’s ability to make decisions that seem responsible and reasonable, but I don’t know if it’s enough to reverse the trend,” Herbert said.
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