Watch Out for Funds Hit by Layoffs
Who's cutting managers and analysts?
Widespread market declines usually mean at least one thing for investment-management firms: layoffs. But these cuts don't come at a good time and are not a positive development for shareholders--just as the market starts to provide compelling buying opportunities, the people running mutual funds are being let go or reorganized.
When assets under management and profits decline, it is understandable for firms to cut back staff in order to remain profitable. In past downturns, though, the most vulnerable areas were in sales and back office staff, which don't affect shareholders as much. This time, however, the market downturn is happening alongside a lengthening recessionary environment, and we are seeing many professional staff cuts as well, which include research analysts and portfolio managers.
If the stresses from dramatic market declines aren't enough, some firms have seen such dramatic reductions in assets that layoffs were widespread. AllianceBernstein saw its assets under management decrease by approximately $30 billion, or 6.2%, in November alone. The firm's research staff, which AllianceBernstein had steadily built up over the last few years, has been reduced by an estimated 8% to 10% to around 151 equity and 62 fixed-income analysts. The layoffs coincide with the retirement of CEO Lewis Sanders after a 40-year career at the firm. Sanders took over as CEO in early 2003 and guided the firm through a series of market-timing charges later that year. Neither of these developments strikes us as positive for AllianceBernstein fund owners.
Ryan Leggio does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.