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Fund Boom Leads to Shortage
Of Seasoned Analysts, Managers
By DAVID WEIDNER
Dow Jones Newswires
Ask top executives at a mutual-fund company what their biggest personnel
problem is and you'll probably get this reply: "We don't have a
problem."
But talk to recruiters responsible for hiring analysts for fund groups
and you will hear a much different answer: Not only is there a shortage
of analysts and fund managers, but many of those in the industry today
have much less experience than their predecessors five years ago.
Blame the shortage on the fund-industry boom. The rising number of
mutual funds and startup fund companies has exceeded the rate at which
qualified analysts and fund managers are produced.
Since 1990, the number of funds has swelled to more than 8,100 from
1,430 and their assets under management have jumped from about $1
trillion in 1990 to more than $3 trillion today, according to Lipper
Analytical Services Inc.
More funds and fund companies mean a greater demand for analysts, who
help portfolio managers pick stocks and typically are groomed in the
fund industry to become managers themselves.
Lawrence Lieberman, president of Robert H. Wadsworth & Associates Inc.,
a New York executive recruiter, says chief investment officers at many
mutual-fund companies are "moaning and groaning" about the difficulties
in finding analysts.
Limited Experience
"When you consider that the average fund manager is 28 years old, you
realize that they probably were in high school in 1987 and that means
there's not much experience there," Mr. Lieberman says. "What we hope it
doesn't mean is that we have a bunch of managers and analysts who are
wet behind the ears."
So bad has the shortage become that even America's biggest fund
companies, which traditionally have had the resources to get the
most-experienced analysts, find themselves in a bind.
David O'Leary, president of Alpha Equity Research, a Portsmouth, N.H.,
firm that tracks Fidelity Investments, says even the biggest U.S. fund
company is losing experienced staffers.
Mr. O'Leary says Fidelity has lost 25 of its top portfolio managers
since the start of 1996. And he says that not one of Fidelity's analysts
who follow stocks in the Standard & Poor's 500-stock index has more than
six months of experience in the industry.
Fidelity has 154 analysts who cover stocks, but the firm wouldn't break
down how many cover S&P stocks.
Sapping the Bench
"They have really sapped their bench," despite increasing base pay and
doubling the bonus potential, Mr. O'Leary says.
Fidelity disputes some of Alpha's numbers, but acknowledges the general
trend. Scott Beyerl, a Fidelity spokesman, says 62% of the companies in
the S&P 500-stock index have had an analyst covering them for more than
six months. And while Mr. Beyerl concedes Fidelity has lost 22 portfolio
managers during the past 17 months, he says it's a "small percentage" of
Fidelity's 460-member staff of analysts, assistants and managers.
"As the industry grows there is a tremendous need to hire people," Mr.
Beyerl says. "There's a lot of competition for good employees, and I
think it follows that companies would be interested [in hiring away] our
people."
To stop the drain, Fidelity has decided to add 30 new analysts, half of
whom will be experienced, people close to the company say. Fidelity also
has given its top six managers more responsibility, and together they
now manage more than $250 billion.
At Charles Schwab Corp. in San Francisco, chief investment officer
Stephen Ward finds that the tightening market has driven wages up for
analysts in his fixedincome and credit research department.
Money Is an Issue
"The issue of money has become a front-burner issue," Mr. Ward says.
Some in the industry say the tight labor market is driving up analysts'
wages by as much as 10% a year, or about twice the current annual wage
increase.
In such a tight market, fund companies want to get the message out that
they're looking. But, says Mr. Lieberman, "Nobody wants to say that they
don't have experienced people on board."
Companies fear that such a proclamation would send shareholders, fearful
that their money is being handled by inexperienced managers, into a
panic, Mr. Lieberman adds.
Some fund groups have experienced so much growth that they need seasoned
analysts who don't require extensive training.
"A lot of people who want to be in the business aren't prepared to be,"
says Jon Zeschin, president of Founders Funds in Denver. Mr. Zeschin
says the firm sees many applicants who had former occupations and now
want to get into the fund business.
"We get the 'I was a mechanical engineer, and I decided I want to become
an equity analyst,' " he says. "Sure, come on in," he says, laughing.
Search for Related Skills
Some fund companies are looking for different but related skills in
order to avoid competition for experienced analysts. Robertson Stephens
& Co., a San Francisco fund company with $4.3 billion under management,
looks at candidates with experience in the industries they will cover.
"It's very difficult to make someone an industry expert with 20 years of
experience," says Andrew Pilara, managing director and head of research
at Robertson Stephens. "But if we can find someone say, with 10 years of
experience in natural gas, that person can be a utilities analyst, and I
think we end up with a better analyst."
Not everyone, however, thinks training rookie analysts is the best
approach. Wadsworth's Mr. Lieberman says fund companies don't see a
problem now because the stock market is in its seventh year of a bull
market. The question, he says, is how will these analysts adjust during
a downturn?
"Sure everything is fine now," Mr. Lieberman says. "But what will these
kids do when the market really corrects? Are they going to panic?"
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