| Tue 22 Jun 2004, 10:52 | | Old Mutual counts cost of being upfront about scan |
|
Old Mutual counts cost of being upfront about scandal at affiliate Pilgrim Baxter
--------------------------------------------------------------------------------
USUALLY companies get brownie points in the market for going public on their misdeeds before they really have to. But the rule didn`t quite work for Old Mutual when it opted in November to go public on the fact that one of its US affiliates, Pilgrim Baxter, was embroiled in a scandal that subsequently engulfed a big chunk of the US mutual fund market.
At issue were two activities that some mutual funds (the equivalent of SA`s unit trusts) had long engaged in market timing and late trading. Only one of the activities (late trading) is illegal and no one has suggested Pilgrim Baxter engaged in it. But both, arguably, were improper in the sense that they disadvantaged the bulk of mutual fund investors.
And New York attorney general Elliot Spitzer decided last year to go after the $7bn US mutual fund industry and clean it up.
Early on during Spitzer`s investigations, Old Mutual decided to launch its own independent probe, by Deloitte, into 22-yearold Pilgrim Baxter, the largest mutual fund manager in the group`s US asset management stable and one of its better known brands in the US.
Pilgrim Baxter had been involved in market timing activities but Mutual had made it stop these at the end of 2001, mainly because they broke the rules of some of the funds they managed. It turned out, too, that one of the firm`s founders, Gary Pilgrim, had shares in a company that was benefiting from the market-timing activities.
Once it had the detailed findings from Deloitte, Mutual approached US regulators, terminated the contracts of Pilgrim and Harold Baxter, put in new management and disclosed all this to the market.
At that point, the US mutual fund story was just beginning and Pilgrim Baxter was one of the first companies to be named. That gained it more publicity, perhaps, than it would otherwise have had.
Also, many of Old Mutual`s South African shareholders were not up on events in the US so the Pilgrim Baxter issue probably caused more fuss than expected.
The group, and CEO Jim Sutcliffe, has been fighting other battles, particularly in sorting out banking subsidiary Nedcor, and has weathered the Pilgrim Baxter storm. In the year to date its share price has gained about 10% in sterling terms and has been the JSE`s best performing life assurer.
Pilgrim Baxter has fared less well. It was originally one of the largest US asset managers Old Mutual acquired when it bought United Asset Management in 2000. It was hugely successful as a growth fund manager in the late 1990s, and though its style went out of favour in 2002/2003, it also sold a range of other mutual funds managed by different specialists in the Old Mutual stable.
Before the scandal broke, Pilgrim Baxter`s own funds under management totalled more than 7bn. By March this year, it had lost $2,3bn of that. That`s small for Old Mutual, which has $160bn under management in the US.
But Pilgrim Baxter is going to take time and probably a name change to regain its credibility with mutual fund investors.
Jun 22 2004 07:04:56:000AM Hilary Joffe Business Day 1st Edition
Tuesday
22 June 2004
COMPANYZONE
