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Problems? Try a New Name

Some Fund Firms Look To Change the Way Investors See Them

By Brooke A. Masters
Washington Post Staff Writer
Friday, September 17, 2004; Page E01

NEW YORK -- When in trouble, change your name. That's one solution surfacing in the current round of financial scandals.

Take the case of the firm once known as Pimco Equity Advisors LLC. A small Manhattan manager of equity mutual funds, the firm had long profited from being associated with its larger, better-known sister company, California-based Pimco, which manages bond funds and is separately run.

_____Mutual Fund Probes_____
A Year of Charges, Reforms for Funds (The Washington Post, Sep 1, 2004)
Mutual Funds Reveal Shareholder Votes (The Washington Post, Sep 1, 2004)
SEC Probes Fund Firms and 401(k)s (The Washington Post, Jul 7, 2004)
Web Special: Latest developments in the investigation.

Last winter, when the New York equity arm came under investigation for allowing possibly improper short-term trading and secret payments to brokers, parent company Allianz Group moved immediately to protect its bond franchise by making the difference between the two clear.

The equity firm was renamed PEA Capital LLC in January, before it agreed this week to pay $61.6 million in two separate settlements. The payments ended investigations into whether the firm allowed a hedge fund to profit from "market timing" at the expense of ordinary customers and steered its stock and bond business to brokers who promoted the firm's funds.

"If there was something going to come up in the regulatory environment, we wanted to make sure the market understood that Pimco, the bond shop in Newport Beach [Calif.], was not involved," said PEA Capital spokesman Phil Neugebauer.

Nor is PEA Capital/Pimco Equity the only fund family that has opted for a name change after becoming entangled in the trading scandal that has shaken the industry in the past year.

Last week, Amvescap PLC paid more than $400 million in fines, restitution and fee reductions to settle allegations that its Invesco Funds Group subsidiary allowed rampant market timing. The firm announced the next day that it was dropping the name Invesco from all eight funds with that name.

In June, after revelations that Putnam Investments portfolio managers profited from predatory trades in their own funds, the firm's parent company, Marsh & McLennan Cos., announced that it was merging a key part of Putnam's business into another division. Companies looking for a firm to administer their 401(k) investment plans can now buy that service from the company's scandal-free Mercer Inc. division, although the staff remains much the same.

Marsh & McLennan spokeswoman Barbara Perlmutter said the reorganization had to do with consolidating human resource services rather than the trading scandal, and an Amvescap spokesman said it has been gradually merging its Invesco and AIM mutual fund operations since early 2003.

But outside marketing experts say no firm drops a brand name without reason -- new letterhead and other branding costs alone are prohibitive.

Company officials "have got to say what they've got to say, but how often do firms change their names after no scandal and eight good quarters in a row? Never," said Johns Hopkins University marketing professor Erik Gordon.

In fact, name changes are a time-honored way of coping with devastatingly bad publicity.

Remember ValuJet Airlines, the Atlanta budget airline that was in the news when one of its DC-9s plunged into a Florida swamp? Eight years later, it's thriving as AirTran Airways.

Earlier this year, WorldCom Inc., home to one of the country's largest accounting scandals, dumped its moniker for that of its better-liked subsidiary MCI Inc. And Citigroup Inc. conveniently "re-branded" its Salomon Smith Barney arm with the Citigroup name within weeks of paying $400 million to settle allegations that Salomon analyst Jack B. Grubman pumped out biased research to win investment banking business.

Academic experts say the strategy works. "If you look at name changes in general, every single one of them has a positive effect, unless you change to initials," said Dartmouth University professor of corporate communications Paul A. Argenti, who studied 40 years of corporate name changes. "I can't see any downside to it. . . . In America you can always reinvent yourself."

The $7.4 trillion mutual fund industry is particularly ripe for this type of strategy, the analysts said, because most investors pay only intermittent attention to the industry and there are more than 8,000 funds. In addition, most investors rely on either a retirement plan or a broker to recommend or select funds, so they are less likely to do the kind of research that would detect scandal-driven name changes, the analysts said.

"Investors have no idea who the managers of their funds are. . . . Is a name change effective? Sure it is," said Robert K. Passikoff, president of Brand Keys Inc., a New York consulting firm. He said fund companies have a long history of merging unsuccessful funds into more successful funds to erase particular names and histories of losses. "It's the mutual fund shell game."

Passikoff said his company's surveys show that there are exceptions to the general facelessness in the fund business -- Vanguard Group Inc., Fidelity Investments and T. Rowe Price Group Inc. all have strong, positive public personas. Putnam is also well-known, but its reputation is now more negative than the others, he said.

More changes are in the offing, particularly at the Wisconsin's Strong funds, which are being bought by Wells Fargo & Co. Strong Capital Management's founder and namesake Richard S. Strong had to pay $60 million and the firm coughed up an additional $80 million to settle allegations that he personally profited from market timing the funds, even as he chaired their boards of directors. Strong spokesman Drew R. Wineland said this week that 27 of the 69 Strong funds will be merged into Wells Fargo funds and new names will be determined for the remaining 42 in the next month or two.

But there are limits to what a name change can accomplish, particularly if the name is associated with a person rather than just a company or a product, said Morris L. Reid, managing director of Westin Rinehart, a D.C. image consulting firm.

Consider the case of Martha Stewart, convicted this spring of obstruction and lying to federal regulators. Her multimedia and housewares empire has been trying to distance itself from Stewart's personal problems. The magazine for parents is now titled simply Kids, and a new cooking magazine is called Everyday Food. Neither makes reference to Stewart, and a syndicated column on weddings has been similarly retitled.

But the effort can only go so far since she is so firmly associated with the product, as Stewart herself acknowledged Wednesday when she asked to go to prison immediately rather than wait for her appeals to finish. Stewart's name may be tarnished by the scandal, "but if she changes it, she's got nothing," said Gordon, the Hopkins professor. "If she decides she wants to be Bill Smith, are people going to rush out and buy Bill Smith towels? I don't think so."

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