Come September, two of the nation's better-known fund groups will become a single family.
Twentieth Century Investors, of Kansas City, and the Benham Group, of Mountain View, Calif., plan to complete a process begun a year and a half ago of merging into a $46 billion complex, encompassing more than 60 funds.All of the individual funds, ranging from aggressive stock funds to conservative bond and money market funds, will continue to operate as before.
As investment companies owned by their investors (hence the name "mutual fund"), the funds are separate entities that cannot be merged or otherwise reorganized without approval by those shareholders.
Perhaps a few funds with similar portfolios and objectives will eventually be combined, according to Chris Doyle, a Twentieth Century spokesman, but that won't happen until 1997 at the earliest.
What will come together next month are the services and operating systems provided by the two management companies, as reflected in such things as quarterly statements and telephone setups for investing in funds and switching money from one fund to another. Some details, including the formal name of the merged organization, have yet to be announced.
"There will be some procedural changes as the two companies unify transaction policies and services, and we may experience some growing pains as we put our new systems in place," Benham says in a current bulletin to its investors. "However, we are making every effort to provide a smooth and convenient transition."
All this has become something of a familiar routine in recent years through several high-profile mergers in the fund business. It it may get even more common in the future if predictions of continuing competitive ferment in the industry come true.
Management company mergers need not disrupt a fund investor's plans at all, and they may provide some appreciable benefits. But "there are some potential pitfalls to watch out for," cautions Jerry Szilagyi of the accounting firm of KPMG Peat Marwick.
"Advisers implementing a merger need to limit the amount of disruption to shareholders," Szilagyi writes in the latest bulletin published by the firm's investment management practice.
If any funds are to be merged, he adds, investors in those funds need to watch to see that the objective the managers pursue isn't changed substantially - or that a strong fund doesn't compromise its performance in the process of absorbing a weaker one.
"The merger of a poorly-performing fund with a well-performing fund usually benefits the former shareholders at the expense of the latter," Szilagyi observes.
"Even if the well-performing portfolio managers continue on with the merged fund, the fund may inherit the lower quality assets of the poor-performing fund, potentially causing a drag on performance or, at a minimum, higher transaction costs or tax implications as the assets are turned over.
"Fund adviser mergers usually improve economies of scale," Szilagyi also points out. "However, it is possible that a merger may not result in lower expense ratios for every investor if the funds of the acquiring adviser maintain higher expense ratios than the funds of the acquired."
The driving impulse behind most fund family mergers is a desire to create a family with a broad product line.
That's certainly the case in the merger between Twentieth Century, which is about 90 percent concentrated in stock funds, and Benham, 93 percent in bond and money market funds.