NEW YORK - A team of emerging markets portfolio managers failed so far to convince mutual fund trustees that management of the fund should follow the team to a new firm.
Mutual fund industry experts called the attempt unprecedented. The action also underscores how any fund - in theory at least - could be vulnerable to attempted coups by outside firms seeking to win control of its assets.
The mutual fund is the G.T. Global Developing Markets Fund, managed by GT Global Inc., a mutual fund company owned by Chancellor LGT Asset Management Inc., New York.
Four members of the team that managed the fund - Christian Wignall, Simon Nocera, Soraya M. Betterton and James Bogin - left Chancellor LGT in the past six months to join CapMAC Investment Management Inc., a new investment advisory division of CapMAC Holdings Inc., a New York insurer.
Mr. Wignall is chief investment officer-equities, and Mr. Nocera is chief investment officer-fixed income at CIM. Mr. Bogin and Ms. Betterton are senior portfolio managers.
Most of the other members of the fund's portfolio management team also resigned this spring, but did not join CapMAC.
CapMAC wrote to trustees late last month, pointing out that all of the fund's managers had left and suggesting a subadvisory relationship to put the fund into the hands of the old team.
William Guilfoyle, president of GT Global and chairman of G.T. Global Funds, said in a statement: "The board has concluded that the existing arrangements between the fund and Chancellor LGT continue to be in the best interests of the fund and shareholders."
Alex Trower, a spokeswoman for Chancellor LGT, said mutual fund trustees made their decision this week. She also said a new team of emerging markets specialists assumed management April 28 of the $545 million closed-end balanced fund.
The new team leader is Allan Conway, global head of emerging markets equities, who was hired earlier this year from Hermes Investment Management Ltd., London. Michael Mabbutt, co-head of the fund and head of emerging markets debt for Chancellor LGT, was previously at Baring Asset Management, London. Both joined the firm in January.
Also on the team is Cheng-Hock Lau, head of the global fixed-income group in North America, who joined the company in 1993.
CapMAC officials would not comment specifically on the contents of the letter, but Howard A. York, president of CIM, said in a statement: "We have yet to receive an official response to our inquiry; however, based on Mr. Guilfoyle's statement, we would hope to have an airing of the issues with the independent board."
Cocktail party chatter
Mutual fund takeover attempts have been "discussed at countless cocktail parties and in many theoretical discussions: Who controls a mutual fund? It isn't the mutual fund company, it's the directors and the shareholders," said Mark Naber, managing director of consulting at Optima Group Inc., Fairfield, Conn.
"The question of a board of directors agreeing to move fund management to a new company when a manager or a team moves has never been forced before. And as a precedent, it has huge ramifications, not only internally for GT Global, but for the whole industry, for 7,000 other funds. It would make things very difficult. Accepting a subadviser on the fund in this way would have sent a message to many other mutual fund companies that the funds might be vulnerable to other subadvisory relationships," Mr. Naber said.
Ronald Feiman, mutual fund attorney at Gordon Altman Butowsky Weitzen Schalov & Wein, New York, also said the proposal was unprecedented. "I cannot recall another situation where the managers have asked the fund trustees to move a fund because they moved to a new company."
CapMAC is an insurance company that had specialized only in credit enhancements for asset-backed securities. In December, it established CIM. The firm is moving quickly to add both staff and domestic and offshore investment products for institutional, retail and high-net-worth individuals.
Initially, CIM expects to target non-U.S. institutional clients who will be attracted by the combination of expertise in structured financing and investment management, said Mr. York. He formerly was president and chief executive officer of Metropolitan Life Insurance Investment Management Corp., New York.
The G.T. Global Developing Markets Fund returned 7.7% for the five months through May 30 based on net asset value, said Tricia Rothschild, international funds editor at Morningstar Inc., Chicago.
Comparison of performance is difficult because the fund has only one peer - the Templeton Emerging Markets Appreciation Fund - which returned 10.4% for the same time period and, according to Morningstar, has been a more consistent performer.
Recent performance of GT Global's international mutual funds overall has been less than stellar. Ms. Rothschild said on a risk-adjusted basis, a Japan fund is the only GT Global international fund to receive a Morningstar investment category rating of 4 or higher over the last three years.
Only part of exodus
The departures of Mr. Wignall and his team are only part of an exodus of senior investment and administrative staff at Chancellor LGT Asset Management. And they follow last year's $300 million acquisition of Chancellor Capital by Liechtenstein Global Trust AG, Vaduz, That deal resulted in renaming the firm Chancellor LGT Asset Management.
Chancellor Capital managed about $62 billion as of Dec. 31, 1996, with more than $17 billion in mutual funds.
The Chancellor LGT marriage appears to have had a rocky start. The company lost a rash of investment staff like Mr. Wignall, who was chief investment officer for international equities and a 20-year veteran of GT Global.
Recent departures in the mutual fund area included David Sherry, a senior portfolio manager of the G.T. Global Infrastructure Fund, whose portfolio management responsibilities went to Derek Webb; Lawrence Yip, who managed the G.T. Global New Pacific Fund and was replaced by Billy Chan in Hong Kong; and Chris Wong, who managed separate accounts in the Pacific Basin product in Singapore and was replaced by Jeffrey Lumm.
Departing separate account personnel included Barbara Mignogna, head of a $1.5 billion small-capitalization growth management strategy, who left earlier this year. She was replaced by Mark Cuneen, who was managing director and co-manager of the small cap growth program.
Among the most senior of U.S.-based administrative staff to leave was David A. Minella, chief executive officer of LGT Asset Management and chairman of the board. He served on the board of directors of the Developing Markets Fund and was replaced by Mr. Guilfoyle. Mr. Minella, responsible for GT Global's $8.9 billion in mutual funds, resigned in February after Liechtenstein Global Trust named Anton Schwaiger president and chief operating officer of asset management, in addition to his role as president of global private banking.
Chancellor LGT's Ms. Trower said many staff changes were made because Prince Phillip, who heads Liechtenstein Global Trust, combined asset management and private banking functions and more closely aligned Chancellor's top-down approach with LGT's bottom-up approach. She also said the company is instituting more risk controls and aiming for more consistency in returns.