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Fund Giants Weather Billions in Outflows

It is no secret that the mutual fund industry has taken its lumps during the market's worst three-year stretch in history, having lost about $1 trillion in assets, while the better part of its 95 million investors have seen their retirement savings decimated.

No firms have been harder hit than the ones at the top. Fidelity has bled $87 billion in assets in the last 12 months ended Jan. 31, Putnam has lost $45 billion, Janus has lost $38 billion, and in spite of the appeal of its index funds, Vanguard's assets have declined by $34 billion, according to Financial Research Corp. (FRC) of Boston.

When asked what kinds of pressure these affronts have put them under, and what, specifically, they are doing to cope with cost constraints, spokespeople at the biggest fund companies maintained the industry has held up fairly well.

But signs of pressure cannot be denied. While largely restricted to the back office, layoffs have been fairly widespread. Bonuses have become rare. Outsourcing has become more prevalent, with some companies even moving their operations overseas. Thousands of funds have been merged or liquidated out of existence. Advertising has come to a standstill, and firms are becoming more diligent about their margins.

Excluding PIMCO Funds, which has enjoyed a decent run-up due to its fixed income exposure, assets at each of the top 10 fund complexes have declined significantly in the 12-month period ending Jan. 31.

In terms of percentage decline, the most notable was at Denver-based Janus, whose $38 billion drop in assets was a 35% decline from the $72 billion it managed at the beginning of the period. Of that $38 billion, $13.4 billion was net outflows. Putnam Investments of Boston experienced about a 27% loss, or a decline of $45.3 billion in assets under management.

Given the tough environment, some fund companies have even begun eliminating portfolio managers and wholesalers. Just recently, Janus announced that skipper Warren Lammert will end his 13-year stint with the firm at the end of the month. Lammert has managed the $4.7 billion Janus Mercury fund since 1993.

Earlier this month, Putnam axed 60 employees, including Margery Parker, one of four portfolio managers on its $3.4 billion Vista fund. In 2001, the firm slashed 256 jobs and fired several managers of its underperforming equity funds.

AIM, headquartered in Houston, also did some reshuffling, which began with a series of layoffs last year that reduced the company's staff by 248 people and forced four of its managers into retirement. In addition, the firm has reduced the number of funds each of its managers oversees, replacing them with some of its senior research analysts.

Elsewhere, Evergreen Funds said in a recent filing with the Securities & Exchange Commission that it plans to roll over the assets of 11 of its mutual funds into 10 other funds in an effort to remove some product overlap in its mutual fund lineup. As a result, the firm's $636 million Evergreen Small Cap Value Fund and the $374 million Evergreen Value Fund will shut their doors.

Fund complexes are also marketing products that are more palatable in this market, such as principle-protection funds or short-term bond funds. That is in stark contrast to the aggressive growth mentality that existed during the technology bubble. To a lesser degree, some firms are offering sector-rotation funds or market-neutral funds, but many industry professionals are not as keen on the idea.

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