With Funds Scraping Bottom, Lindner's New Managers Have a Long Way to Go

In come the consultants, out go the old managers. Is that enough?
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In our next life, we're going to run mutual funds, not write about them.

This is our kind of business. People give you money, pay you a nice fat fee and you are hardly ever expected to beat the market -- because, hey, how many do anyway?

No matter how much you screw up, an amazing percentage of people will stick with you, treating their investments like some inheritance from Aunt Millie that has been left to kick around the unclaimed assets office of the state treasury department. But this business is even better: Not only do the fund companies keep your money, they charge you an annual fee to keep it.

Why would we want to be in any other business?

Exhibit A: the

Lindner Funds

. Much has been written about Lindner's dismal performance and how investors have yanked more than half the assets since 1996. The really amazing thing to fathom is that there is still $1.5 billion left in these funds, considering what is going on.

Value investing has been a difficult path, and Lindner, a once-impressive value shop founded in the 1970s by the late Kurt Lindner, can match lousy numbers with anyone. Take almost any recent period, and Lindner Funds are scraping bottom. Its flagship

(LDDVX)

Lindner Dividend fund, for instance, ranked 225 of 230 equity income funds over the last year and 151 of 152 over the last three years, says

Lipper

.

Say what you will, Lindner's owners, Chairman Doug Valassis and President Eric Ryback, are not sitting still. Their answer: Bring in the consultants. The consultants' answer: Fire everybody, hire us.

In February, in a highly unusual move, Valassis (a former dentist) and Ryback (Lindner's protege) hired

Vantage Consulting Group

to overhaul the funds. Almost immediately, small-cap manager Donald Wang, widely considered the firm's best manager, walked out the door. Last week, Lindner said it was closing its St. Louis money-management operation and moving it to Boston; it fired its four fund managers. The only manager spared: Ryback, who was listed as a manager on all Lindner's funds. Think he might have been part of the problem?

Maybe things can't get worse. We'll see.

What Lindner now has is a three-man investment committee based in St. Louis -- Valassis, Ryback and Vantage's Mark Finn (who is actually in Virginia Beach, Va.) -- and a research department it is starting to build in Boston. This department is headed by Jeffrey Fotta, another Vantage consultant who will also continue to run his own Boston equity research firm. (We'd keep the day job, too, if we were Jeff.)

Russel Kinnel, equity funds editor for

Morningstar

, thinks Lindner is "winging it." He says the funds industry is full of consultants, used for everything from measuring risk to polishing an image. "But I have never heard of something like this, where the consultants come in running the fund," he says. "It is very strange."

Finn says Lindner's quantitative investment model was in sore need of repair. Rather than spread risk, Finn says, Lindner's model focused on absolute value rather than relative value. What that meant was Lindner's investments were concentrated in a few areas -- like energy -- rather than trying to pick the cheapest stocks in a broad range of sectors. Low commodities prices crushed performance, he said.

Finn & Co. is now in the process of thoroughly remaking all the portfolios. He says the most progress has been made in the tiny ($24 million)

(LDUTX)

Lindner Utility fund, and the fund in fact ranks No. 6 of 101 similar funds this year.

Finn denies the consultants are running the joint. But he says: "When the world changes ... you have to make changes to respond. There are some changes that had to be made."

We hope Finn can fix this wreck, we really do. But Lindner remains, more or less, based in Missouri, the Show-Me State, and Finn is going to have to show investors he can right this sinking ship. In the meantime, with roughly 8,000 mutual funds to choose from, why would anyone wait around to find out?

It could happen only in the mutual fund business.

Steven Syre & Steve Bailey write for the Boston Globe. This column is exclusive to TheStreet.com. At time of publication, they held no positions in the stocks or funds discussed in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy stocks or funds.