Scudder Seems To Be Becalmed

Was the Pilot asleep at the wheel?

While the mutual fund business has boomed, the family of funds managed by Scudder, Stevens & Clark in Boston and New York has barely grown in the past 2-1/2 years. The Brahmin investment company that has used a pilot symbol in its logo since 1928 has hit a sand bar.

The Scudder family, the nation’s sixth largest direct marketer of funds with $34.5 billion under management, has seen more money exit than enter since the end of 1993. Total assets have increased by $1.7 billion since then, thanks only to net investment gains.

Meanwhile, competitors have rushed ahead. Assets managed by all mutual fund firms increased 35.9 percent during the same time, according to the Investment Company Institute. Scudder’s market share shrunk by nearly a third from 1.78 percent to 1.24 percent, based on data from Dalbar Inc. in Boston.

With that backdrop, Scudder has just turned over its mutual fund reins to Mark Casady, a young executive who came from Concord Financial less than two years ago to run its defined-contribution retirement services.

Casady has been moved into that role amid a larger management shift in anticipation of chairman Dan Pierce’s retirement in about three years. President Edmond Villani acquired the title of chief executive in the past two weeks, and Casady now reports to him.

Business has not always been this slow for Scudder’s funds. They grew by an impressive 160 percent from 1990 to 1993, when investors beat a path to Scudder’s door. But since then, the company has given back its advantage and compiled a growth record for the 1990s that is distinctly average.

Forces have worked against Scudder mutual funds over the past two years, not the least of which is its investment culture, which stresses stable and conservative management. Limiting risk is not a big selling point in the growth-oriented fund market of today, but it works in a money management segment more important to Scudder.

Despite the visibility of its mutual fund business, Scudder runs nearly twice as much money in separate private accounts for institutions and wealthy individuals. Total assets under management exceed $105 billion.

Scudder’s mutual fund product line has also fallen out of fashion. Nearly half its assets under management are fixed-income investments, a tough sell ever since the disasterous bond market of 1994. And Scudder’s emphasis on international investing has yet to attract big mutual fund money.

One of Scudder’s best-known stock and bond funds, Growth & Income, has roughly doubled in assets to $3.3 billion since the end of 1993. But the once-popular Short Term Bond fund tumbled from $3.2 billion to just $1.7 billion during the same time.

“Our portfolio has essentially underperformed” because of the types of assets it emphasizes, said Casady.

But T. Rowe Price, the mutual fund company that most resembles Scudder in structure, has increased its assets under management by nearly 66 percent to $56.8 billion in the same 2-1/2 years. Like Scudder, it is also a direct-sales company with exposure to international investments and bond funds.

A number of Scudder observers point to other problems that can’t be solved with a new fund or a direct-mail ad pitch.

Scudder, which converted from a partnership to a privately held corporation 11 years ago, has continued to think and act like a partnership - a stodgy one at that. The company made its decisions based on consensus, which is to say slowly, and has been known to talk issues to death on occasion.

Though Scudder’s mutual fund business technically reported to Pierce, it was operated by commitee as a practical matter. Consensus ruled, but acted glacially while the fund industry raced forward.

There appears to be an effort to change at Scudder. Both Villani and Casady talk about the increased authority of their new positions. A committee will still direct Scudder funds, but it reports to Casady. Dudley Ladd, who runs Scudder’s retail mutual funds and Linda Coughlin, manager of the firm’s $12.9 billion of funds marketed through the American Association of Retired Persons, both now answer to Casady.