Our Take on Fairholme and St. Joe

 St. Joe's (JOE) announcement last Friday that it is under formal SEC investigation regarding its accounting of land values could not have come at a worse time for  Fairholme (FAIRX), St. Joe's largest shareholder. The bad news arrived while lead manager Bruce Berkowitz continues to contend with Fairholme's heavy outflows and poor recent performance.

Investors yanked an estimated $1 billion from the fund in June, bringing total net redemptions over the past four months to $3.5 billion or 17.5% of its February total assets.

Even though St. Joe's was just a 3% position in the fund as of Feb. 28, it has taken up a significant share of Berkowitz's time in recent months. He became chairman of St. Joe's board in March after a proxy fight with the company's previous management. While he has said that he would like to reduce his direct involvement in the company and would even consider giving up the chairmanship, that's unlikely to happen any time soon in light of Friday's announcement. Plus, the company is still looking for a permanent CEO.

This episode reinforces some of our concerns tied to Berkowitz's involvement in St. Joe. Although Berkowitz has said that he is not directly involved in the SEC investigation, the worry is that St. Joe's could become a distraction and a drain on his time. Berkowitz's work ethic is legendary, but even he has only so much capacity.

Meanwhile, Fairholme is suffering through its worst stretch of relative performance in its history. The fund is down about 9% for the year to date because of its underperforming financials positions and now trails the S&P 500 Index by about 17 percentage points.

Manning & Napier Files for an IPO
Asset manager Manning & Napier filed for an IPO last week.

While the filing is unexpected, Katie Rushkewicz, the Morningstar analyst who covers Manning & Napier funds, doesn't think the company's culture will be compromised by becoming a publicly traded firm. The firm, long focused on delivering strong absolute returns, has an investor-friendly compensation plan in place. Funds must make money for bonuses to be awarded, and if there are losses, funds must recoup those losses before a bonus is paid. The firm also hasn't had major issues retaining talent. The senior management responsible for running the firm's 18 funds has an average of 22 years experience at the firm.

Founded in 1970, the Rochester, N.Y., firm is 100% employee-owned and manages about $43 billion in assets. About $17 billion of that is in mutual funds, up from $10 billion from a year ago, according to Morningstar's June 30 fund flow data. Of the firm's fund assets, about 80% are in 5-star rated funds as of June 30, and three of the firm's funds are Analyst Picks.

Founder and Chairman Bill Manning at 74 is the largest shareholder, having bought co-founder Bill Napier's stake in the 1990s. Estate-planning purposes could be a factor in the public offering.

Manning & Napier's filing follows on the heels of recent IPO filings by Artisan Partners and Oaktree Capital, two other boutique employee-owned firms.

Profitable even during the 2008 bear market, Manning & Napier's "net income margin" has averaged over 29% over the last five years. The company had revenue in excess of $250 million in 2010.

For more information on the S-1 filing, click here.

Sudden Departure for T. Rowe Manager
Joseph Rohm is no longer manager of the  T. Rowe Price Africa & Middle East (TRAMX) after leaving T. Rowe on June 30 to relocate to Cape Town, South Africa. Rohm had managed the fund, which has $203.8 million in assets, for a bit more than two years.

Chris Alderson, who heads up T. Rowe Price's international operations, will manage the fund on an interim basis while the firm looks for a formal replacement. Sudden manager turnover is unusual for T. Rowe, which typically broadcasts a manager departure six-months to a year in advance, during which time the new manager is mentored by the outgoing one.

Alderson had managed the fund from 2007 to 2009, but given his large responsibilities at the firm, his being the lead here is less than ideal. Since launching in 2007, the fund already has had several management changes.

New York Axes Columbia as 529 Manager
Columbia Management has lost another 529 contract, leaving it with just one.

JP Morgan Asset Management was selected to replace Columbia as investment manager for New York's advisor-sold 529 Program, which has over $1.9 billion in assets and receives an Average Analyst Rating from Morningstar. The decision was made by Upromise as part of its renewed seven-year contract as program manager for New York's 529 College Savings Program. JP Morgan hasn't held a 529 contract since 2007 when it was fired by Indiana.

Columbia's New York plan received an Average Analyst Rating in the Morningstar� Analyst Rating for 529 College Savings Plans 2010.

In addition to losing its New York contract, Columbia also was fired by Nevada in 2010. Putnam has since absorbed the assets associated with Columbia's plan in Nevada. Columbia now only manages a single plan in South Carolina for which Columbia's parent  Bank of America (BAC) is also the program manager.

Meanwhile, Vanguard was again selected by Upromise to run New York's direct plan. Currently the nation's largest direct-sold plan, the NY 529 Direct Plan has grown to $10.2 billion as of May 2011 from $2 billion in November 2003 (when Vanguard was first selected for New York).

The NY 529 Direct Plan charges a total annual asset-based fee of 0.25%, after the plan cut expenses by nearly 0.50% last August when a one-year contract extension was signed. The plan has not made any fee reductions as part of the latest contract. The Vanguard-managed direct plan receives Morningstar's second highest rating of Above Average.

New York's 529 College Savings Program, which includes both the advisor- and direct-sold plans, has more than $12 billion invested in more than 680,000 accounts.

Etc.
Calamos Advisors reduced fees on all share classes of Calamos Value, Calamos Blue Chip, Calamos Discovery Growth, Calamos International Growth, Calamos Global Equity, and Calamos Total Return Bond through a fee waiver active until June 30, 2013. To see a full schedule of fee reductions, click here. 

Mark MacDonald, who had been with American Funds since 1994, retired recently and was replaced by John Queen on the management team of  American Funds Short Term Bond Fund of America (ASBAX). Queen first joined the firm in 1989 and rejoined in 2009 following some time at Hotchkis and Wiley Capital Management and Roxbury Capital Management.

Franklin Templeton Investments filed to launch Templeton Emerging Markets Balanced on July 1, 2011. The fund will have several well-known skippers at the helm, including Michael Hasenstab and Mark Mobius. They will invest in a diversified portfolio of bonds and stocks, with at least 80% of assets invested in emerging-markets countries. A shares of the fund will cost 1.53%.

TCW will merge away two funds with poor records. The asset manager plans to merge its $7.6 million TCW Large Cap Growth  into  TCW Select Equities (TGCNX). As a result, Large Cap Growth will close to new investors on July 29, 2011. There will be no changes to the strategy or management of TCW Select Equities after the merger. Also, TCW plans to merge Diane Jaffee's  TCW Relative Value Small Cap , which has $23.8 million in assets, into the  TCW Value Opportunities (TGVOX). Jaffee recently took over the Value Opportunities Fund from retiring manager Susan Suvall. Relative Value Small Cap will also close to new investors on July 29. Meanwhile, Derek Derman and Donald Evenson, the managers of Large Cap Growth, will no longer manage TCW Growth . The fund is now managed by Husam Nazer, Robert Park, Michael Reilly, Brendt Stallings, Anthony Valencia, and new manager Craig Blum of TCW Select Equities. 

ING Janus Contrarian  removed Janus Capital Management as subadvisor and changed its name to ING Core Growth and Income Portfolio. The fund is currently managed by ING Investment Management, and will merge into ING Growth and Income in early 2012.

MFS filed to launch MFS Emerging Markets Debt Local Currency in September 2011. The fund can invest 100% of assets in lower-quality debt, as well as a large percentage of assets in a single country or region. Ward Brown and Matthew Ryan will manage the fund. MFS also filed to launch MFS Global Brands on Sept. 15, 2011. The fund will invest in stocks of domestic and international companies that have well-recognized brand names.

Mutual fund analysts Katie Rushkewicz, David Falkof, Ryan Leggio, and Kailin Liu contributed to this report.