The gold standard—or some would say, baseline—for firm-client alignment of interest is a manager’s personal assets invested in the fund they run.
And if it ever was the case, it is no longer universal, according to Morningstar.
The firm’s Director of Manager Research Russel Kinnel dug up data from regulatory and marketing filings to find managers whose personal allocation had dropped from at least $1 million to zero.
PIMCO and Wells Fargo led the pack with two funds each in this situation.
“I’d feel better if his co-managers showed more enthusiasm for these funds.” —Russel Kinnel, MorningstarAt the Newport Beach bond giant, Managing Director Curtis Mewbourne no longer has any allocations to two funds under his direction, Kinnel said: PIMCO Floating Income and PIMCO Diversified Income. Reached by CIO, the firm did not provide comment by press time.
Wells Fargo Managing Director Charles Rinaldi had similarly taken all of his skin out of the firm’s Advantage-brand small/mid cap value and small cap value funds, both of which he has managed for years. Wells Fargo said the move was motivated by estate planning, according to Kinnel.
“That makes me wonder if he is nearing retirement; he’s now likely in his 70s, as he graduated from college in 1965,” the Morningstar research head wrote. “I’d feel better if his co-managers showed more enthusiasm for these funds.” One of Rinaldi’s two deputies has between $10,000 and $50,000 in each fund, Kinnel said, while the other co-portfolio manager has nothing in either.
LSV Asset Management and Scout Investments also made the Morningstar list.
LSV’s CIO Josef Lakonishok has dissolved his $1 million-plus stake in the firm’s small cap value mutual fund, while retaining large allocations in four other strategies.
Finally, Milwaukee-based Scout told Morningstar that Managing Director Mark Egan had liquidated his shares in its unconstrained bond program for tax reasons, but was now reinvested. Two of his co-managers have upwards of $1 million each in the fund, as of the latest available filings.
In most instances, asset management companies did not explain why portfolio managers had liquidated their own investments, Kinnel wrote in his Morningstar post.
“There are some plausible excuses, such as divorce or home purchases, to explain why they might have sold their holdings,” he continued. “Other possible reasons could include managers moving their money to other funds that they think focus on a more appealing asset class.”
“Still, it’s pretty discouraging to see managers selling” these funds, which Kinnel described as all having “some appeal.”
Read Russel Kinnel’s full post for Morningstar: “Fund Managers Who Spit Out Their Own Cooking.”