Who's in Charge Around Here?

Late Monday, the folks at Gabelli Asset Management announced that Tim O'Brien, manager of Gabelli Utilities (GABUX) since its mid-1999 inception, is leaving the shop to take over Evergreen Utility and Telecommunications (EVUAX). O'Brien's departure--while a loss for shareholders--wasn't what caught my attention. It was this: The $10 million Gabelli offering will be team-managed in the future.

Startled, I called Gabelli. After all, shifting to a team structure is unusual at a shop that has long subscribed to the "cult" of the portfolio manager. Gabelli is known for its high-profile, long-tenured people-in-charge--such as Mario Gabelli, Mark Gabelli, Howard Ward, and Caesar Bryan--many of whom write their own portfolio commentaries, keep in touch with shareholders on a quarterly basis, and serve as frequent contributors to CNBC's Squawkbox and CNN's Moneyline.

I had a sinking feeling that Gabelli might be jumping on a growing trend in the mutual fund industry (they aren't, but we'll get to that later).

Many fund shops really do subscribe to the team-management structure--some quite successfully. Increasingly, though, the industry--especially firms expecting management turnover in the near future--is taking refuge in the team-managed approach. This practice saves the legal and corporate-communications departments lots of headaches, and the sales and marketing groups lots of money. Here's why: When a company identifies their portfolio manager(s) by name, they have to file a supplement--called a Form 497--to their prospectus if that manager leaves or gets new responsibilities. The change is usually deemed "material" by the company's legal team, so the shop is also required to notify shareholders of the shift within 30 days. That can mean a whole lot of postage. What's more, a new filing usually requires a new press release and all the media management that comes with such an announcement. Call in the spin doctors.

Filing a team-managed approach, as the Van Kampen Funds did for their American Value  and Emerging Markets   offerings in the first quarter of 2002, can simplify things for a fund shop. It saves time, energy, and money for the firm. Moreover, it shields turnover, cutting down on those pesky, panicky calls from shareholders (and independent research firms, such as Morningstar) who care about management tenure. After all, it's written right into the filing, at least in Van Kampen's case: "The composition of the team may change without notice from time to time." Thus, the fund can serve as a training ground for new analysts or portfolio managers. This practice definitely isn't in the best interests of the shareholders, though. It obscures the true structure of the fund's day-to-day activities and often hides interim managers. Thus, investors have little idea as to who, exactly, manages their money. And it means there's just one less data point to use in judging a fund's record. After all, it's tough to make an accurate assessment of a team's past performance if its members can change without warning.

Van Kampen isn't the only shop that has moved a fund from a single to a team-managed structure in recent months. For example, State Street Global Advisors formalized their team approach in September of 2001, shifting the direction of SSgA Special , International Growth Opportunities , and Growth and Income  to a group of portfolio managers--although most of the managers have been around a while. Other fund companies have reworked individual offerings: For example, after 11 years running the MFS Government Securities Fund (MFGSX), Steve Nothern jumped ship two weeks ago. He's been replaced by a five-person "fixed-income team" that plans, for the most part, to mimic Nothern's approach. Nations Blue Chip  fired James D. Miller in January, 2002, and replaced him with the Northern team that runs Nations Strategic Growth (NSGAX) in anticipation of merging the two offerings.

It has to be said that a "team-managed" approach isn't necessarily bad for performance and we're definitely not taking issue with that management style: Witness the performance of the Mutual Series (read about behemoth Mutual Discovery (TEDIX) here) and American Funds (read about American Funds Capital Growth and Income (CWGIX) here), two industry pace-setters which offer some of the best long-term records available in just about every asset class.

But back to Gabelli.

Gabelli shareholders shouldn't worry: As it turns out, one team-managed portfolio doesn't indicate any change in the shop's overall strategy. In fact, the fund's day-to-day direction will now fall to the same group of managers, headed by Mario Gabelli, that currently directs the shop's closed-end Gabelli Utilities Trust. That's probably good news for performance, at least. After all, the team has always sought take-out candidates and consolidation plays, such as Cinergy . Its portfolio--full of beaten-down natural-gas firms, generators, and a few communications firms--has proved astoundingly resilient in a nasty market. The fund dropped just 3% in 2001, while the average specialty-utilities fund lost 21%.