February 14, 2000
Scudder Kemper Investments of New York and Boston is cleaning house. Pending shareholder approval, it will merge similar funds it offers, completely liquidate six small funds, and reshape its funds' administrative fees and boards of directors.
The initiatives are part of Scudder's attempts to make its operations more efficient and to focus its resources, said the company in a statement.
"We are leading the industry in responding in a comprehensive way to investors' desires for simplicity and logic in fund offerings," said Mark Casady, head of Scudder Kemper Investments Global Mutual Funds Group in a statement. Scudder Kemper, which manages $290 billion in assets, is the global money management unit of Zurich Financial Services Group in Zurich, Switzerland.
Scudder expects to pare down its current 77 fund offerings to 43 funds to increase the remaining funds' sizes and reduce shareholder costs. Twenty-two Scudder Funds will remain unchanged. Six funds that Scudder's fund trustees judged to be lacking sufficient scale and market demand will be liquidated. The group includes two single state tax-free money funds, two international funds, a real estate investment trust fund and a financial services fund.
The mergers will not affect the Chicago-based family of intermediary-distributed Kemper Funds, nor any of Scudder Kemper's closed-end funds.
The Scudder initiative signals the growing trend toward fund advisers taking stock of their overall fund offerings, improving performance, merging duplicate funds and eliminating small funds not expected to grow.
"The industry is rapidly maturing faster than anyone could have imagined," said Steven Shapiro, a spokesperson for Scudder. "You have to look at your product line and ask, What do investors want?' Investors want lower fees and strong core funds."
Scudder is also working to stem the tide of assets flowing out of the fund group. The Scudder funds had net redemptions of more than $3 billion in 1999, said Shapiro.
Scudder is by no means alone in its fund merger strategy. Last year, 407 funds (including share classes) were merged with other funds, according to Morningstar, the fund tracking firm in Chicago. That is up from 395 funds that were merged into other funds in 1998 and 283 in 1997. In addition, 175 funds were completely liquidated in 1999. By comparison, 232 were liquidated in 1998 and 173 in 1997, according to Morningstar.
The assumption that "build it and they will come" is no longer true, said Rui Moura, vice president and chief marketing officer at Jones & Babson Mutual Funds in Kansas City, Mo. It is an outdated notion that fund companies should offer investors all manner of funds, he said.
"The key is not about having a gazillion funds, but about having a few good ones," said Jack Sharry, president of the retail division of Phoenix Investment Partners in Hartford, Conn.
The Scudder restructuring plan also includes the merging of 15 of the 16 funds that were created in a joint venture with the American Association of Retired Persons (AARP) of Washington, D.C. All but one of the AARP funds will be merged with existing Scudder Funds with similar characteristics. All the funds will adopt the Scudder name. In order to accommodate the needs of AARP's more mature investors, six of the resulting Scudder funds will continue to be managed under a risk-adjusted mandate.
In 1985, Scudder and AARP entered into an affinity-marketing joint venture whereby five mutual funds bearing the AARP name were to be managed by then Scudder, Stevens & Clark and marketed to AARP's 50+-year-old members. The program is called "The AARP Investment Program from Scudder." The arrangement has been cited as one of the few successful affinity marketing programs in the mutual fund industry. It includes a large educational component provided by Scudder.
AARP, which counts some 2.5 million households among its members, does not have a similar joint arrangement with any other mutual fund advisory firm, said Craig Hookstra, a spokesperson for AARP. The AARP funds currently have $17 billion under management among 900,000 accounts, he said.
AARP members are not likely to feel alienated once the AARP name is replaced on the funds, said Hookstra. The AARP is in favor of better aligning the funds' names with their day-to-day investment management company, he said. It clarifies who is doing the investment management, he said.
"Members have asked What has AARP got to do with it?'" he said.
AARP will continue, as part of its long-standing contractual arrangement, to have oversight over customer service for fund shareholders and track the funds' performance, said Hookstra.
"AARP is irrelevant to the money management process," he said.
AARP members will, for the first time, be allowed to invest in any of the Scudder funds-not just the 16 previously made available to them. The broadening of the fund choices was done in response to member desires.
"The younger (50s-ish) investors want more risky funds," said Hookstra.
The restructuring plan will also change the administrative fees for all of Scudder's funds. Scudder will adopt a unitary, fixed-rate administrative fee on each fund. The single fee will include expenses such as transfer agency, custodial charges, shareholder servicing fees and fund accounting costs. Similar unitary administrative fee structures are available from AIM Funds of Houston, Tex., Janus Funds in Denver, Colo. and Phoenix-Engemann Funds in Hartford, Conn., according to Lipper of Summit, N.J.
Scudder also plans to revamp its mutual funds' board of directors. Pending shareholder approval, Scudder will do away with its five "cluster" boards, each of which has oversight for some of the Scudder funds. Scudder will instead adopt a single board for all of its funds. That board, which will reflect the suggestions for a unitary board structure proposed by a special ICI advisory committee on board governance last year, will include one affiliated director with ties to the AARP, said Hookstra.