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Ghost Rider: Who's Running Your Fund?

Beware the ubiquitous 'team' label if you want to know who's really behind the wheel.

Imagine putting $50 on toothy Nascar hotshot

Jeff Gordon to win the Daytona 500, only to see twitchy funnyman

Don Knotts behind the wheel of Gordon's car.

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In a way, the same type of bait-and-switch can happen in the mutual fund world, where you have far more than $50 at stake. Fund companies are required to tell us who runs their funds, but many simply list the generic "portfolio management team." While that label is often accurate, it can also be a convenient way to avoid disclosing who runs a fund and how long or how briefly they've been in place.

"There are some places where they use team management as window dressing," says Phil Edwards, director of Standard & Poor's global funds research unit. "I think it's a critical issue, and I'm not sure it's clear enough."

The upshot: The team label can be used as a loophole. When it is, you might end up buying shares of a fund whose manager had little or nothing to do with the track record that drew your attention and your dollars. Let's look at how this works and then zero in on some situations where the seemingly simple issue of who's in charge of a fund is anything but.

A Little History

In the early 1990s, fund companies didn't have to disclose their funds' managers, but regulators tried to clear that up.

"About 10 years ago, the rule was changed to require portfolio managers to be named in prospectuses," says Pamela Wilson, an attorney specializing in mutual funds at Boston law firm Hale & Dorr. "You have to tell people who runs the funds, and that has to be true. Portfolio managers had become stars, and they put their names in the disclosure."

Or not. Actually, when listing fund managers, fund companies have choices. They can either name the person or people who run a fund, or simply say it's an anonymous committee or team. If the fund names names, management changes have to be noted, too. However, if a fund is simply team-managed, changes don't have to be marked in the fund's paperwork or other literature.


Securities and Exchange Commission

might check to make sure a fund's team label is accurate during routine inspections, which can happen every year or less frequently than the Olympics, according to Wilson. Long story short, the team label potentially lets a fund company change jockeys often without looking shaky or prone to manager turnover.

"There is some subjectivity there, and that's what people can take advantage of," says Scott Cooley, a senior fund analyst at Morningstar.

One example of this loophole came up during last week's 10 Questions

interview with Steve Grant, manager of the


Value Line Emerging Opportunities fund. The fund has made what looked like a miraculous comeback. After finishing near the bottom of the small-cap growth funds category in 1995, 1996 and 1997, the fund had gone on a tear, topping its average peer each year since then.

Like all Value Line funds, this one's prospectus says it is run by "a committee of employees." Its information on Morningstar said that team had been in place since the fund's 1993 launch. After I

noted the fund in a screen of small-cap funds, Grant emailed to introduce himself as the fund's lead manager and to explain the resurgence. He'd taken over the fund in July 1998 and implemented a new strategy that relied more on technical analysis than on fundamentals.

The fund's shifting management and style weren't clear, thanks to the "team" label. In fact, during an unpublished portion of the interview, Grant disclosed that it really isn't much of a team approach after all.

"I have two other people, but they both have their own funds to manage," he said. "So I pretty much do the work for this fund."

Despite the disconnect between the fund's paperwork and reality, Grant didn't see a problem, but shareholders may disagree.

"We advertise all our funds as being managed by a team approach," he said. "Are we the only fund that says team-managed?"

Joining the Team

Far from it. More than 900 funds in Morningstar's database are listed as team-managed. And Value Line is certainly not the only fund shop where that label seems at best vague -- and at worst misleading.

Munder's $1.5 billion

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NetNet fund rose to prominence as the


bubble inflated and once had more than $12 billion in its coffers. The fund's prospectus says that it's run by "a team of professional portfolio managers," but neglects to reveal that this team has changed over time.

From the fund's 1996 launch through October 1998, the fund listed managers Steven Appledorn, Ken Smith, Paul Cook, Alan Harris and Brian Salerno on Morningstar's database. Then, that switched to the monolithic team label. Harris and Appledorn were among other Munder employees

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laid off in November, but that's not reflected in the fund's filings. According to the fund's information on, the team hasn't changed since 1998. Nor is the streamlining noted on the fund's page on

Munder's Web site.

It complicates matters even further when a fund's management team is represented differently, depending on where you look. The sputtering


Putnam OTC & Emerging Growth fund, where manager Steve Kirson was

fired two weeks ago, offers a good example.

If you look on the

fund's page on Putnam's Web site, Putnam's nine-member specialty growth team is listed as the fund's manager. But the fund's prospectus on the same Web site lists three managers: Roland Gillis,Michael Mufson and the dismissed Kirson. The fund's page on

Morningstar lists the same three.

Why Worry?

What's the big deal? It wouldn't be one if all managers were the same, but they're not.

Imagine if no fund company told us who ran its funds -- and then put yourself in the shoes of the

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Fidelity Aggressive Growth fund's shareholders. Erin Sullivan left the fund on Valentine's Day in 2000, and the firm announced that Robert Bertelson was taking the reins. That gave Fidelity watchers like

Jim Lowell a chance to warn shareholders that Bertelson's past record wasn't stellar. The fund has

fallen far harder than its peers on Bertelson's watch.

The fundamental problem with accepting the anonymous team concept is that most teams we encounter, whether back in Little League or at the office, have a coach, a boss or someone calling the shots. However, institutional investors often don't have to accept the team label.

"It's pretty paternal and insulting to the individual investor," says Russ Kinnel, Morningstar's director of fund analysis. "When these same fund companies try to attract pension fund money, they tell them exactly who runs the fund."

In many cases, however, the team label makes sense.

American Funds

, quietly the nation's third-largest fund company, uses a well-documented "portfolio counselor" system that many say merits the team label. Each fund's assets are divided among several managers, each picking stocks using the same approach. There, "if one person leaves, it's a pebble in the pond, not a boulder," says S&P's Edwards.



rightly says its

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Research fund is team-managed because its assets are divided among several of the firm's analysts.

Nevertheless, funds with "team-managed" billing that's more convenient than accurate do muddy the water and probably aren't going away anytime soon.

"Unless the SEC really cracks down on some of these companies, I don't see where there's a resolution to this," says Morningstar's Cooley.

The best way to avoid these traps is to steer clear of funds with generic team labels, according to Cooley and Hale & Dorr's Wilson.

In the end, the situation calls for the few fund companies being tricky with the team idea to review what Wilson says was the idea behind all fund disclosures: Don't lie.

Ian McDonald writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to, but he cannot give specific financial advice.