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IPOs Raise Awareness More than Value

Mutual fund companies that have undergone an initial public offering have enjoyed a higher profile and have been better equipped to retain key talent through stock options than before going public, said mutual fund executives and analysts.

However, not all mutual fund companies that have done IPOs have succeeded in attracting large influxes of capital, analysts said. In fact, of the three mutual fund companies that have done IPOs in 1999 - Gabelli Asset Management of Rye, N.Y., BlackRock Funds of Wilmington, Del. and Neuberger & Berman Funds of New York - only BlackRock was trading above its IPO level as of Feb. 2, said Brad Moore, an equity analyst with Putnam, Lovell, deGuardiola & Thornton, an investment banking firm concentrating on the financial services industry, in San Francisco. A week later, none of them were trading above their IPO level.

Gabelli opened in February 1999 at $18.75/share and was trading at $18.87 a share on Feb. 9. Neuberger & Berman opened in October 1999 at $32.25 a share and was at $24.68 on Feb. 9. And BlackRock, which Moore characterized as the only profitable mutual fund IPO of 1999, opened at $19.37 in October 1999, but was trading slightly down at $18.50 on Feb. 9 and had even dipped to $12.50 at its lowest trading point since opening. Since it opened at $22.18 in 1998, Federated Investors Funds dipped to a low of $15.31 last March and was at $21.75 on Feb. 9. All four stocks are traded on the New York Stock Exchange and figures are from the exchange.

"When [Federated Investors Funds'] stock goes down, that makes me hurt," said Chris Donahue, CEO of Federated of Pittsburgh, Pa. which went public in 1998. "We love shareholders and we are a sales powerhouse."

However, regardless of where the stock is trading, having gone public has brought many other, "ancillary" benefits to the firm, Donahue said.

Most importantly, being public brings with it public attention, Donahue said. It has brought Federated international attention that was instrumental in creating the firm's joint venture with Verficsicherungen of Germany in late January, Donahue said. Prior to the offering, Verficsicherungen had never heard of Federated, he said.

Federated's IPO has also been critical for motivating employees with stock options.

"The IPO has helped attract, retain, invent and communicate the Federated story inside the fort as well as outside the fort," Donahue said. Federated employees own 40 percent of the company as a result of the IPO, he said.

"Pushing stock ownership down to the employees is one common thread" of recent mutual fund IPOs, said Moore of Putnam, Lovell.

IPOs have also helped mutual fund companies, as profitable as they may be, "with their various growth incentives ranging from research and development on new product development and launches, acquisitions and new venues in different countries," Moore said.

"Their goal, clearly, at Gabelli is to leverage and expand internationally, particularly in Europe," Moore said.

Mario Gabelli, chairman of Gabelli Asset Management, did not return phone calls. BlackRock and Neuberger & Berman also did not return calls.

"Despite their reputation and brand-recognition here domestically, it could be challenging for Gabelli, who is a relatively small manager, to roll out in other countries," Moore said.

The mutual fund companies that have gone public recently have been interested in raising the profile of their companies, particularly in light of the extremely competitive business environment right now, Moore said.

In its 45-year history, Federated has switched back and forth between private and public ownership five times, Donahue said. Because of the current tight labor market and keen competition, "it makes the most sense for shareholders, for us, to be public."

If this scenario should change, Federated might very well switch back to being private, Donahue said. He said the Federated jury was still out on the "price verdict" on his company's stock.

In the meantime, Federated is enjoying analysts' and financial reporters' attention, Donahue said.