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July 6, 2012

Would you want to know if a fund manger invested in companies that he/she has an interest in?

There is a lot of information relating to mutual funds available.  Some is disclosed in materials distributed by the fund and some by third parties.  Morningstar is known for its reporting and grading of mutual funds and other investments.  Years ago, after disclosure of conflict of interest issues were made public, started to publish “Stewardship Grades”.  Morningstar does not think that the Stewardship Grades should  be used to determine if a fund should be held.  It should be one of the factors considered.  This is a way to measure how the fund management and its parent  viewed their relationship with their fund shareholders.  The grade is based on their proprietary data and information pulled from public regulatory filings.  Their analysis includes; corporate culture, manger incentives, fees, regulatory history and for U.S. fund firms the board quality.

Json Zweig’s June 15th article in The Wall Street Journal, “A Fund Manger’s Home Cooking”, discussed the dealings of Daniel J. Rice II.  He was a co-manger of several BlackRock funds.  Issues were raised regarding his personal dealings.  The funds he manges invested in energy and other natural  resources stocks.  He also had “…a “multimillion-dollar side business in the energy industry.”  There was not any disclosure initially when these issues were raised.  When asked, “a BlackRock spokeswoman says the firm didn’t disclose these relationships because it isn’t required to.”  “While BlackRock is the world’s largest asset manager…Mr. Rice’s family company has raised capital through some firms that have run afoul of regulations.”  When the issues started to circulate, Mr. Rice stepped down as the co-manager of its energy mutual funds.
I do not know how or if this situation impacts Morningstars’ Stewardship Grade.  If I owned any of the funds I would like to know if there was a situation where the funds interests could be in conflict with that of the fund manager.
Morningstar does
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