Cash flees families of funds in inquiry<\/p>\n
Withdrawals for Strong, others top industry rate<\/p>\n
By AVRUM D. LANK alank@journalsentinel.com, Journal Sentinel<\/p>\n
Saturday, October 18, 2003<\/p>\n
Money flowed out of mutual funds owned by Menomonee Falls-based Strong Funds and three other firms implicated in a Wall Street scandal at a rate higher than that for the industry as a whole during September, a report released Friday says.<\/p>\n
The Lipper FundFlows Insight Report says that about 25% of the total outflow from funds in September came from funds owned or managed by Strong, Bank of America’s Nations Funds, Banc One and Janus.<\/p>\n
“Their aggregate mutual-fund assets as of August 31 were slightly over 6% of the industry total, so one does see an out-sized flow in relation to relative size,” the report says.<\/p>\n
On Sept. 3, New York State Attorney General Eliot Spitzer implicated the four companies, but did not charge them, in a scheme to allow a New Jersey hedge fund to trade in and out of some of their mutual funds more often than other shareholders.<\/p>\n
The Lipper report notes that “one cannot assign specific cause- and-effect to dollar amounts, since many factors drive flow totals.”<\/p>\n
The report says that the four fund families had aggregate net outflows of about $7.9 billion in September. Contacted Friday, Lipper officials declined to release information for specific funds or fund companies.<\/p>\n
Strong has said investors in September withdrew $69 million from its stock funds and $199 million from its bond funds, a total of $168 million.<\/p>\n
The Lipper report says:<\/p>\n
“The four firms had an average 0.87% net outflow of assets per month during the first eight months of 2003 (prior to . . . Spitzer’s announcement), while the rest of the industry’s outflows were a minuscule 0.01% per month. In September, the four firms saw 1.85% flow out while all others in aggregate had a 0.36% outflow (mainly in money funds). The difference was larger in September than in any month since January.”<\/p>\n
In a statement, Stephanie J. Truog, spokeswoman for Strong Financial Corp., said that the $69 million outflow from its stock funds in September represents “less than one-third of one percent of total equity assets under management,” which she said amounted to $20.9 billion as of Sept. 30.<\/p>\n
Meanwhile Friday, Fidelity Investments, Morgan Stanley and Franklin Resources Inc., three of the biggest U.S. asset managers, became part of a widening probe by Massachusetts Secretary of the Commonwealth William Galvin into alleged illegal mutual fund trading.<\/p>\n
A salesperson at Fidelity, one at Morgan Stanley and a former employee of Franklin may have coached Prudential Securities brokers to avoid detection when making short-term trades that violated fund policies, a person familiar with the inquiry said.<\/p>\n
Galvin’s investigation began by focusing on brokers at Prudential and Morgan Stanley in Boston and on possible wrongdoing by Putnam Investments.<\/p>\n
“It’s a huge investigation that is getting exponentially larger every week,” said Tom Dewey, a partner at Dewey Pegno & Kramarsky, a New York law firm that specializes in defending securities firms.<\/p>\n
“This investigation is going to go on a long time and have very serious consequences.”<\/p>\n
Kathleen Gallagher of the Journal Sentinel staff and Bloomberg News contributed to this report.<\/p>\n","protected":false},"excerpt":{"rendered":"
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