Crain News Service
NEW YORK -- For years, Dreyfus Corp. was one of the few major mutual fund companies that refused to say how much its funds took in and how much they lost in redemptions.
No wonder: The New York company's mutual fund assets grew a meager 10% between 1992 and 1996, a period when Fidelity Investments and Vanguard Group tripled assets under management.
These days, Dreyfus is more forthcoming. Chief Executive Christopher "Kip" Condron happily reports net sales of its long-term stock and bond funds totaled $2.5 billion in 1997. That's a dramatic improvement from 1996 and 1995, when investors pulled net sums of $13 million and $932 million out of Dreyfus funds, he said.
"We have invested a lot of money hiring talented investment managers and building our (sales force)," said Mr. Condron, who last month became president and chief operating officer of Dreyfus' parent company, Mellon Bank Corp. of Pittsburgh. "You can't answer the question 'Is it working?' without at some point disclosing your distribution numbers."
Since joining Dreyfus a little more than two years ago, Mr. Condron has pushed the company to create the kinds of stock mutual funds and deliver the performance required to compete with Fidelity, Vanguard and the six other companies it trails in assets under management.
"Dreyfus used to be perceived as out of step, preoccupied with fixed income and totally disinterested in equity products," said Burton Greenwald, a Philadelphia-based consultant to the fund industry. "Kip has gone a long way toward changing that perception."
A lot of work remains. Investors continue to pull money out of the company's trademark municipal bond funds -- a response to falling interest rates and the popularity of the stock market. Some of Dreyfus' oldest stock funds continue to lag the market, and the company has been slow to go after 401(k) money and overseas investors.
Moreover, because Dreyfus fund managers keep such low profiles, the company has missed opportunities to parlay the strong returns of its top funds into greater sales.
"Outside of (Dreyfus chief economist) Dick Hoey, there's no one who really shows up in the press," said Michael Lipper, president of Lipper Analytical Services, New York.
"Remember, it takes a long time to turn around one of these battleships, and it looks like they're on the right track."
Since taking the helm in late 1995, Mr. Condron has launched 10 equity funds, recruited 25 investment professionals and hired 30 wholesalers responsible for selling Dreyfus products to brokers and financial advisers.
Several of the new funds have emerged as top performers: The small-cap Dreyfus Emerging Leaders Fund returned 34% last year and 37% in 1996; the Dreyfus Midcap Value Fund returned 28% and 37%. In comparison, the Standard & Poor's 500 had a 33.3% return in 1997, while the Russell 2000 Index had a 22% return and the Russell Midcap Value Index, 34%.
The payoff has been dramatic. Dreyfus recorded $3.6 billion in net equity fund sales last year, more than offsetting the $1.1 billion in redemptions from bond funds. This helped boost Mellon's asset management revenue to $924 million for the first three quarters of 1997, up 26% from 1996. Dreyfus now has approximately $100 billion under management.
"People are buying our funds again," Mr. Condron said. "In 1997, we got three times our market share in terms of new flows of money into equity funds."
Today, 27% of Dreyfus assets are in stock funds, vs. 14% when Mr. Condron was hired. He wants to reach 50% within three years.
It's an ambitious goal and one that will require a lot more investment. In an effort to boost sales of existing funds, Dreyfus has launched a new print advertising campaign and soon will start selling its funds via its new online discount brokerage. In August, Mellon acquired Pacific Brokerage Services Inc., a Los Angeles-based Internet broker, and renamed it Dreyfus Brokerage Services Inc. The current Web address is www.tradepbs.com, but it will change in the first half of the year to reflect the acquisition.
Mellon also has entered into joint alliances in Brazil and Chile that will allow it to begin selling funds in Latin America. And Dreyfus continues to develop new funds, introducing the Premier Tax-Managed Growth Fund and the Technology Growth Fund late last year. Altogether, the company has 150 funds.
Nevertheless, Dreyfus must find some way to boost the returns of its existing funds. Its flagship stock fund, the Dreyfus Fund, has been in the bottom half of its peer group every year since 1987. Dreyfus changed portfolio managers in June, tapping up-and-coming Timothy Ghriskey without immediate success. It ended 1997 up only 11%.
"That's pretty poor, considering the market," said Todd Eberhard, a Manhattan investment adviser who has money in both the Dreyfus Fund and the Growth Opportunity Fund, another long-time laggard. "Normally, you put your best manager at your flagship fund, and if even he is not matching the returns of the broader market, that concerns me."
Even if Mr. Ghriskey resurrects the Dreyfus Fund, the company still needs to broaden its business to attract more investors. In particular, Dreyfus will have to do better in getting 401(k) business, which constitutes as much as a third of fund assets for some competitors, but only 5% of Dreyfus' $91 billion under management.
In December, Mellon paid a reported $275 million for Founders Asset Management Inc., a Denver-based mutual fund company with $6.7 billion under management. Founders eventually will be integrated into the Dreyfus fund group.
"They weren't going to pay the healthy price they did for Founders unless it enhanced the Dreyfus brand," Mr. Lipper said. "With Founders, my guess is they have a better chance of capturing more 401(k) business and more financial adviser business."
Adding Founders' growth funds to Dreyfus' mix of index, international, small-cap, value and fixed-income offerings will make Dreyfus a more rounded fund family. This should appeal to advisers and 401(k) plan sponsors seeking one-stop shopping for their clients.
"We've focused on middle-market companies, and that's a place where our ownership becomes a big asset," Mr. Condron said. "Mellon is big in middle-market banking and can provide us with a lot of referral business."
But ownership by Mellon can hurt, too. Four years after acquiring Dreyfus, Mellon was labeled one of the best takeover candidates of 1998 in a Jan. 4 report by PaineWebber Inc.
Dreyfus officials insist the prospect of a Mellon takeover will not affect their operations. Mr. Condron said there's nothing to stop Dreyfus from making another Founders-type acquisition.
