Tuesday, October 02, 2007

American Century Investments & Lance Armstrong

This past weekend's edition of the Wall Street Journal featured an article on the recent management turmoil at American Century Investments. I last wrote a post about the firm here, in February of 2006, when I noticed that Lance Armstrong had formed a relationship with the firm.

As I mused in that post, it seemed odd that Armstrong would represent a service like mutual fund management, which is so prone to changes in fortunes.

And, as it happens, that's exactly what is occurring at American Century now. According to the Journal article, it has a number of poorly performing funds which have had management shake ups.

Meanwhile, the article tells us, the founding family of American Century, the Stowers, have moved on to endowing a medical research institution nearby to help cure the cancers with which both elder Stowers have diagnosed.

Between the family's focus on the medical institute, and Kansas City's declining attraction for many of the investment firm's managers, the talent drain began recently, seeing 20 or more managers and senior executives leave the firm. Some complained that the benefit to the institute of a rise in the price of American Century shares had eclipsed their use as long term incentive compensation for fund managers at the firm.

As for Armstrong, his own foundation receives more money from American Century when the investment firm's results exceed a certain threshold. The former cyclist is quoted as saying that he thinks people "want to be involved with a company that's put themselves out there on such a human level."

Personally, I think the average retail investor simply wants better returns. Institutional investors, which are a new focus of the investment management firm, are even more focused on returns, and less on social issues.

One of American Century's funds, Ultra, seems to be moving in the right direction this year, with its performance back up to 15%. However, it seems to me that the entire episode of wholesale management changeover, and a drop in returns of many of the firm's funds, until recently, demonstrate how risky it may be for someone of Armstrong's ilk to tie his fortunes to such a financial services vendor.

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