Europe on tenterhooks over mutual fund probes

Distributors are re-evaluating potential agreements with asset managers in the light of a series of US probes into mutual fund practices. Financial services authorities in France, Germany, the Netherlands, Switzerland and the UK have also launched investigations in the fear that market abuses of US funds could prove a wider-spread problem.

Bernard Aybran, head of manager selection at LCF Rothschild in France, was among those on tenterhooks.

“The asset managers involved in the ongoing US probes – Putnam, Strong, ACM – cannot be on our buy list,” admitted Mr Aybran. “Fortunately we do not work with any of those funds at this point. We cannot even consider investing with them in the near future before the storm has calmed down.”

Markus Melchart, fund selection expert at the Viennese bank Epicon, said he would monitor the investigations closely, although it was too early to take action yet.

He said: “We have a reasonable portion of Austrian funds in our portfolio and the Austrian regulation of the relationship between custodian bank, investment manager and the transfer agent prevents any kind of late trading or market timing.”

A Citigroup spokesman confirmed that the private banking arm was also “keeping a watching brief”.

Further departures have followed New York’s attorney general Eliot Spitzer’s campaign against improper trading in the US in tandem with Securities and Exchange Commission investigations. Putnam’s chief executive Larry Lasser was forced to quit, replaced by Charles E “Ed” Haldemen. Richard Garland, CEO of Janus International, has also resigned.

The world’s largest pension fund, CalPERs, terminated Putnam from a E1bn mandate. Fund managers selling products in Europe have been drawn into Mr Spitzer’s line of fire, including Morgan Stanley and Deutsche Bank.

Epicon’s Mr Melchart added: “We still see mutual funds as the appropriate vehicle for investing as you get professional management and a high grade of diversification – all for small amounts of money”.

US federal prosecutors have meanwhile charged 47 foreign exchange traders with allegedly defrauding small investors out of “millions of dollars”.