NORWALK, Conn. - Affiliated Managers Group Inc. is putting the affiliates in its money management stable to work managing mutual funds.
So far, three AMG affiliates have taken advantage of their Boston-based parent company's offer to set them up with a mutual fund vehicle through The Managers Funds LLC, Norwalk, Conn., and more are in the pipeline.
In December 1999, AMG launched the Managers AMG Funds, which offers funds managed solely and singly by its 15 investment affiliates, a different approach from the manager-of- managers strategy used in the 13 funds in The Managers Funds family. Funds in the AMG series clone the managers' institutional investment strategies.
The Managers Group provides back-office administration, accounting, marketing and distribution for the funds. Essex Investment Management Co. Inc., Boston, was already managing an Aggressive Growth Fund for The Managers Group, which was moved into the AMG series of funds. Two other affiliate-managed funds debuted in 2000: The Frontier Growth Fund, managed by Frontier Capital Management Co., Boston, and the First Quadrant Tax-Managed Total Market Plus Fund, managed by First Quadrant LP, Pasadena, Calif. The Frontier Small-Company Value Fund is in registration at the Securities and Exchange Commission.
Mutual fund management is a new endeavor for most of the 15 institutional managers that holding company AMG has invested in, so the move gave many of the managers "cold feet" at first, said Peter M. Lebovitz, president and chief executive officer of The Managers Funds.
But AMG bought a majority stake in The Managers Funds on April 1, 1999, when it had $1.7 billion under management, precisely to get hold of a mutual fund distribution and marketing platform from which to launch mutual funds managed by its institutional affiliates.
It would behoove institutional money managers that are dependent on defined benefit plan assets, even those with a large partner like AMG, to broaden distribution of their products, said Peter Starr, managing director, Cerulli Associates Inc., Boston.
"What institutional investors have a hard time getting their arms around is that the ability to gather assets within the defined benefit plan channels will become much more difficult as that market continues to shrink. I suspect that AMG will try to leverage the individual identities of the affiliate companies within the context of both the defined benefit plan and mutual fund markets. Their chance of success is dependent on getting to a critical base of assets," Mr. Starr said.
The Managers Funds, which had nine manager-of-managers funds when it was purchased by AMG 18 months ago, now has 16 mutual funds and one in registration. Total assets under management hover around $4 billion, with net new sales of more than $1 billion year to date, a nearly 10-fold increase from 1999 net flows, which were just $192 million, according to fund flow data from Strategic Insight, New York.
In fact, The Managers Funds had the fifth-highest net sales year-to-date as of Sept. 30 within the captive and institutional mutual fund rankings of Financial Research Corp., Boston. Roughly one-third of net new sales year to date are from defined contribution plans. About 20% of total assets under management are from retirement plan investors.
The new AMG mutual funds represent each affiliate manager's first forays into mutual fund management, and Mr. Lebovitz said he is seeing a lot more interest from other AMG managers, who initially were wary of the complications of mutual fund administration and distribution. He stressed that the decision to offer a mutual fund is entirely at the discretion of the individual affiliates. But the managers may be further persuaded to offer their investment strategies in a commingled format like a mutual fund by the success of the Essex Aggressive Growth Fund, which had attracted $374 million under management as of Sept. 30, before the end of its first year of operation.
Overlap not a concern
Mr. Lebovitz wouldn't be drawn into speculating which AMG affiliates would be next in line to begin managing their first mutual funds. But he did indicate that he was not worried about overlap of asset class coverage between any new funds from AMG affiliates and existing Managers Funds offerings. In fact, the Managers Funds already cover nearly the whole spectrum of asset classes. Any new funds likely to be introduced within the manager-of-managers fund family probably will be in the area of alternative investments such as real estate investment trusts or sector funds, such as a natural resources fund.
While the manager-of-managers approach of The Managers Funds was initially pitched at the bank trust company market, additional distribution channels - defined contribution, broker/dealer and third-party intermediary - have been added that are particularly ripe for mutual funds managed by institutional money managers. Mr. Lebovitz said that while growth in the retirement plan channel has been spectacular so far this year - net sales were about $350 million compared with $75 million in 1999 - it has come as the result of almost five years of ground work persuading plan sponsors and consultants that a manager-of-managers approach is appropriate. AMG affiliates tend to market the mutual funds they manage to existing defined benefit plan clients, while The Managers Funds markets to consultants and directly to retirement plan sponsors.
"This isn't the kind of thing where you flip a switch and presto-chango - in comes a billion dollars. Our growth this year is the result of some long-term work on our part. There are no consultants out there who don't know these managers that we use in our funds and who don't already use them in combination to manage their clients' defined benefit plan portfolios. ... The same is true of the jumbo pension plans, where sophisticated investment staff already know these managers and are interested in using them for their company's defined contribution plan."
The Managers Funds may further target the needs of retirement plans with commingled funds, or institutional mutual funds, also managed by as yet-to-be-determined AMG affiliates, said Mr. Lebovitz.