PETER Lynch is, without a doubt, one of the best stock-pickers ever to find his way into the mutual fund world, and continues to be one of Fidelity Investments’ biggest assets.
But under a new series of guidelines published by the Investment Company Institute, the trade group for mutual fund companies, Lynch may find his role at Fidelity greatly diminished.
Although Lynch retired as portfolio manager of Fidelity’s flagship Magellan fund in 1990, he is still remembered fondly for his long tenure during which time he managed to outperform the S&P 500 by an average 13.4 percent per year for 13 years.
No wonder Fidelity asked him to join the board of directors that provides oversight for the fund immediately upon his stepping down as portfolio manager.
But now there’s some doubt that Peter Lynch will be allowed to keep that job. Last week, the ICI recommended that 67 percent of each fund’s board be made up of independent directors, up from the legally mandated 40 percent now.
What’s more, ICI redefined independent directors. From now on, it means that no one who ever worked for the fund, the fund company, the principal underwriter to the fund, or any other affiliated organization can be considered an independent director.
Not only might Fidelity’s Lynch lose his board seat to this rule, but so might other famous mutual fund managers like the recently-retired Michael Price, who has stepped down from running any of the Franklin Mutual Series funds, but continues to act as chairman of the board for the family of value-oriented funds.
While the ICI guidelines are voluntary, the Securities and Exchange Commission is expected later this summer to turn at least some of these suggestions into laws, which would force mutual fund families to re-jigger their fund board appointments.
While I applaud any effort that is intended to ensure that shareholders’ rights and interests are paramount, I would hate to see a mutual fund industry operating without the collective insight of star stock-pickers like Lynch or Price.
As mutual fund firms go through the exercise of turning over more board seats to independent directors, I hope they pay close attention to the one-third of the board that is still allowed to comprise affiliated directors, including former fund managers.
In that way, shareholder interests will be protected by both the independent thinking that outside directors will bring to the board as well as the historical depth of understanding that men like Lynch and Price bring to the entire industry.
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Fidelity’s discount brokerage unit inked a deal with Lehman Brothers, through which the Wall Street firm will distribute financial products and initial public offerings to Fidelity’s 6.5 million online brokerage customers.
The deal extends the services and IPOs that Fidelity can offer its customers, while giving Lehman Brothers a toehold in the retail market, which it currently does not serve greatly.