Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Chapter 11 Woes Prompting Funds to Value Accounting Experience


Enron's bankruptcy has obviously affected the portfolios of several mutual funds. And other notable chapter 11 filings including Global Crossing and K-Mart, has also been a factor in at least one fund complex's decision to add analysts with accounting backgrounds to its research department. In fact, the demand for buy-side analysts with accounting savvy is on the rise, according to industry executives.

Fremont Funds, a San Francisco-based no-load fund complex with more than $3 billion in assets under management, recently hired two new securities analysts with strong accounting backgrounds to help the company's research efforts. While Enron's troubles were not directly responsible for the new hires, the increasing complexity of corporate financial statements, methods of accounting and voluminous changes to accounting rules over the past decade prompted the hiring of specialized analysts, company officials said.

At a media conference held in New York earlier this month, Nancy Tengler, president and chief investment officer of Fremont Investment Advisors and Noel DeDora, chief equity strategist and portfolio manager, said the group hired a former Wells Fargo analyst and a senior examiner with the Federal Reserve.

"Tax and regulatory structures are very complex, and that's not going to change," said DeDora. "Right now Enron has [simply] brought it to the forefront."

Currently, Fremont's total research staff is made up of five analysts, not including DeDora and Tengler, who also have a hand in the fund group's research efforts.

Untangling Accounting Complexities

Fremont found that it needed analysts who could cut through reams of financial statements to get a clearer picture of how well a company was doing, where its earnings were coming from and the impact of an accounting rule change would have on the company, DeDora said.

While it may not be critical to have research analysts with a deeper understanding of accounting issues on staff, it can prove helpful.

Of the 12 securities analysts that Jon Lewis, director of financial research at American Century Investments in Kansas City, Mo., oversees, two have more in-depth financial accounting experience, Lewis said. One analyst, a CPA, was hired last year because of her accounting experience, he said. "We need to have a better understanding of how accounting issues, such as the change in goodwill accounting, impact the growth trends of a firm."

Wanted: Analysts with Accounting Experience

"We have always put a very strong emphasis on the accounting side [of securities analysis]," said Kevin McClintock, managing director with David L. Babson & Co. in Boston, advisor to the 14-fund Babson complex. McClintock said that his firm currently has a couple of openings for analysts with strong accounting backgrounds. "People with CPAs or an accounting degree can demand a premium and will get the jobs over some of the people who don't have that expertise," he added.

It can also help to hire analysts who have been on the other side of the game and have written the very statements analysts have to pore over, namely, CFOs, said McClintock.