New Dreyfus CEO Turns Eye to Distribution
Challenge is Building on Brand Image
May 5, 2008
Dreyfus Corp., a dominant force in money market funds as well as the high-net-worth market through its parent company, Mellon, will become a leader in long-term mutual funds and other investments, if its new chief executive, Jon Baum, meets his goal.
"We want to become a top-tier distributor," said Baum, also vice chairman of distribution, who took over as the CEO after Thomas Eggers retired from the New York unit of Bank of New York Mellon Corp. at the end of last month. It also wants to enter the top 10 and eventually the top five in asset inflows.
Analysts say Dreyfus faces a steep climb if it wants to join the likes of American Funds Distributors Inc. and Vanguard Group.
A couple of decades ago Dreyfus stood out because of its innovative fixed-income and money market products. But Lawrence Jones, an analyst at Morningstar, said Dreyfus' products have become just another collection of funds with only average performance and without a clear identity.
Its long-term stock and bond mutual fund assets stood at $41 billion at March 31, or about $800 million less than at the end of 2002, according to Morningstar. This does not include assets in other products, such as money market funds and separate accounts. In all, Dreyfus had $296.5 billion of assets under management at April 24.
"Dreyfus was once a much more prominent name than it has been over the past decade or so," Jones said. The new CEO "has got his work cut out for him."
Baum said he has several positives to build on, including Dreyfus' money market fund success and the pruning of its fund lineup in recent years. In addition, a recently completed reorganization turned the unit from an asset manager into a distributor of "multi-boutique" products from its 17 sister asset management companies, as well as from outside companies.
"We think we're well positioned to succeed," he said. "But there are very few companies with such broad offerings, so it's going to take a little while."
Dreyfus has a lot of ground to make up, according to data from Financial Research Corp.
Last year, investors pulled nearly $4.7 billion more out of the unit's long-term mutual funds than they put in, giving Dreyfus one of the industry's biggest net outflows, FRC said. By comparison, the 10th-best fund firm in terms of net flows, Dimensional Fund Advisors, took in a net total of $14.6 billion, while the leader, American Funds, took in $74.7 billion.
Burton J. Greenwald, president of B.J. Greenwald Associates, said that Baum is a good choice to lead a comeback, despite these hurdles-or perhaps because of them.
"He is a very talented sales manager with strong experience in all channels, particularly in large wirehouses," Greenwald noted.
Baum said that Dreyfus will focus its distribution efforts on large, national financial services firms, including the biggest banking companies.
Its commitment to regional and small banks will not flag, he said, but they often are most interested in its money market funds.
National Account Execs
In the last couple of years Dreyfus has increased its wholesaler corps by more than one-third, to 55. But it also is strengthening its national account group, which tries exclusively to develop broad relationships with big clients, Baum said.
"Wholesalers still have a very significant role, but what it takes to succeed today is different from what it was five or 10 years ago," he said.
The fund lineup increasingly includes portfolios with a more modern profile, such as the Dreyfus Premier 130/30 Growth Fund. The alternative investment fund, introduced in October, uses certain hedge fund strategies.
As a result of recent pruning, Dreyfus' stable of funds has fallen to 106, from 129 five years ago. The pruning and adding is about three-quarters complete, Baum said.
Superior performance, Jones reminded, is the best way for a fund company to revitalize itself.
For the past one- and three-year periods, the average performance of Dreyfus' long-term mutual funds has been in the middle of the pack, according to Morningstar data.
But Baum said he expects a performance improvement.
The latest market cycle, driven by price momentum, was at odds with the patient, value-oriented approach widely used by Dreyfus' managers, he said.
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