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New Hires Signal Transition for BlackRock's Asia Funds

A top choice in the small-cap growth category closes to new investors, and more ...

Morningstar Analysts, 09/15/2011

When it comes to its retail mutual fund business in Asia, BlackRock is still trying to find its legs.

Recently, BlackRock BLK said Nick Scott had quit as head of its relatively new Asian-equities team. Scott had been hired in 2007 from Prudential PLC PUK to build out the Asian-equities team partly by moving staff from BlackRock's Princeton, N.J., and London offices. During his tenure, funds managed by his team, such as BlackRock Pacific MDPCX, generated lackluster performance versus peers in the diversified Pacific/Asia category.

BlackRock may be the world's largest asset manager with a mammoth distribution network, but fund performance matters. Scott left more than 15 BlackRock retail mutual funds that are focused on investment in Asia, but together they had less than $4 billion in assets globally. Arguably, the major focus for BlackRock's Asia Pacific operations in the past two years has been integrating the firm's massive 2009 acquisition of Barclays Global Investors in the region. BGI's global chief operating officer, Rohit Bhagat, had agreed to become chairman of BlackRock Asia in order to lead the integration effort for two years. In announcing last week that Bhagat is stepping down as chairman, BlackRock signaled that the integration effort is complete, but the firm also said Bhagat is leaving the firm.

While BlackRock may be squarely focused on growing its newly integrated Asia business, it's difficult to see how a solid investment culture at its retail mutual fund business there is being cultivated without long-term stability within top management. Moreover, there is reason to be cautious about new management. Scott's replacement, Andrew Swan, was hired from JP Morgan Asset Management, where he was a portfolio manager in Asia. However, some of the funds he helped manage, such as JPMorgan Asia Equity JAEAX, don't have much better records than Scott's.

Meanwhile, BlackRock said last week that Bhagat's replacement is Mark McCombe, who was the chief executive of HSBC Hong Kong and, before that, head of HSBC Global Asset Management. While McCombe oversaw strong asset growth in HSBC's emerging-markets funds, that doesn't necessarily equate to improving fund stewardship for the individual investor.

Shareholders Gain From Soft Close at Brown Capital Management
Current investors in Brown Capital Management Small Company BCSIX will benefit from the decision of its board to "soft" close the fund. On Oct. 3, the fund, which has $1.3 billion in assets, will be closed to new investors while existing investors will be able to add money, as will clients of financial advisors using certain platforms.

Brown Capital did close the fund once before in 2003 when assets reached roughly $700 million. The firm reopened the fund in 2007 after assets declined to $300 million.

The move has been in the works for several months back when Brown Capital first noticed capacity constraints emerging for the fund. This shareholder-friendly move should allow the fund's managers to maintain their relatively concentrated portfolio of small-cap and sometimes-illiquid holdings. The fund remains one of Morningstar analysts' top choices in the small-growth category.

Expect a Smooth Succession at Winslow Green Growth
Winslow Green Growth WGGFX manager Jack Robinson is stepping aside, but investors should expect a smooth transition. On Oct. 1, Karina Funk, Elizabeth Levy, and David Powell will replace Robinson as comanagers on the fund.

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