Michael Glazer, a lawyer for the Clipper Fund with Paul, Hastings, Janofsky & Walker LLP in Los Angeles, said Barrow Hanley is one of the managers being seriously considered, but the firm "doesn't have a leg up on (anybody) else that's being seriously considered."
A decision to take those billions of dollars away from the Old Mutual group would be a rare event.
"This is huge," said Eric Weber, principal with Freeman & Co., New York, an investment banking and consulting firm. "Boards of directors are being more careful in their due diligence," rather than doing exactly what the sponsoring firm wants.
Boards are supposed to have an arm's-length relationship with a fund's investment adviser, but they rarely live up to that standard, said Russ Kinnel, a senior analyst with Morningstar Inc., Chicago.
While Barrow, Hanley is an "excellent manager," Mr. Kinnel said, "it could be a small step for fund investors and fund boards if this one were to move the money outside the Old Mutual umbrella."
Directors at the other Old Mutual unit using Pacific Financial — Wayne, Pa.-based PBHG funds — agreed to switch to Barrow, Hanley to subadvise more than $1.2 billion. (Technically, PBHG directors agreed to retain PFR, "following the reorganization…under the leadership of Barrow, Hanley.")
In the Clipper case, independent director F. Otis Booth said in the news release: "We will of course evaluate Barrow, Hanley as a potential manager… However, our objective continues to be to conduct a thorough search to identify the best candidates… concentrating on firms that will continue the investment approach that Clipper Fund has followed over the years."
Scott Powers, chief executive officer of Old Mutual, applauded the independent directors for exploring all options, pledging to support "their efforts in any way we can."
At PFR, Messrs. Gipson, Sandler and Veaco are known for taking concentrated bets on their favorite deep value stocks and parking big chunks of the portfolio in cash when the market gets pricey. For the quarter ended June 30, Clipper's shareholder report showed the fund holding 23 stocks, with 9.3% of the portfolio in Federal Home Loan Mortgage Corp. shares, 5.7% in American Express Co. and 5.6% in Marsh & McLennan Cos. Inc., as well as 27% in cash.
Consultants say Barrow Hanley's portfolios, although still concentrated at far fewer than 50 holdings, typically have five to 10 more names than a Pacific Financial portfolio, with assets more evenly distributed.
Finding a manager whose style is identical to Pacific Financial's is unlikely, observers said.
Clipper Fund's board has four directors — PFR's Mr. Gipson and three independent ones: Mr. Booth; Norman Williamson; and Lawrence P. McNamee.
Calls to Mr. Booth were referred to Old Mutual spokesman Tucker Hewes. Mr. Glazer, the attorney, said Mr. Williamson, the chairman of the fund's board, declined to comment on the search for a new adviser. Mr. McNamee didn't return calls seeking comment.
Mr. Glazer said Mr. Gipson would recuse himself on decisions regarding a new manager for the fund. He also said the board will ask PFR to pay Wilshire's bill, with the fund paying any portion not paid by the firm.
Some observers believe more and more mutual fund boards will seek advice from outside experts. And some consultants are positioning themselves to respond to the expected demand. Callan Associates Inc., for example, launched a mutual fund board services unit in December 2003. Greg River, a senior vice president in Tucson, Arizona, is head of the unit.
"Boards are engaging in a much more forceful dialogue with fund sponsors on what they're doing" to fix problems, Mr. Rivers said. He noted Callan's new unit is picking up both retainer relationships and project work.
