With the acquisition of the parent company due to close in July, the future of the storied Dreyfus Corp. still is uncertain.
PHILADELPHIA — With the acquisition of the parent company due to close in July, the future of the storied Dreyfus Corp. still is uncertain. Although the Dreyfus brand will survive after its Pittsburgh-based parent, Mellon Financial Corp., is acquired by The Bank of New York Co. Inc., according to Jon Little, Dreyfus’ London-based chairman, “we’re studying all the bits and pieces” of the merged company.
Consultants are poring over all parts of the company to help determine the right structure post-merger, he said.
What that means for Dreyfus isn’t clear.
The Mellon name is used around the world, while the Dreyfus name is used only in the United States. And despite its formidable brand, Dreyfus has suffered an image problem in the United States of late.
“I think it’s fair to say their approach to managing money
wasn’t working except in isolated products,” said Howard Schneider, president of Practical Perspectives Inc., an industry consultant in
Boxford, Mass. “They had not carved out a reputation as a strong money manager.”
A look at Dreyfus’ fund group score from Morningstar Inc. of Chicago illustrates his point.
The score is an asset-weighted average of all of a fund company’s Morningstar star ratings within an asset class. A score of between 2.5 and 3.5 is about average.
Fund outflows
Dreyfus’ domestic-stock funds have a fund group score of 2.8. The company’s international-stock funds have a score of 3, while its
taxable-bond funds score a 2.8.
Only Dreyfus’ municipal bond funds earned an above-average score of 3.8.
Such mediocre performance has resulted in fund outflows.
Year-to-date through February, Dreyfus had $42 million in net outflows from its equity funds and $78 million from its bond funds, according to Financial Research Corp. of Boston.
Last year, the company had net outflows of $2.78 billion in its equity funds and $1.42 billion in its bond funds. And in 2005, Dreyfus had net outflows of $2.54 billion in its equity funds and $1.65 billion in its bond funds.
But those numbers don’t tell the whole story, said Tom Eggers, who was named chief executive of Dreyfus at the end of last year.
Outflows are slowing as a direct result of an improvement in performance that has yet to show up in the Morningstar scores, he said.
“We have more funds improving than we have declining in relative performance,” Mr. Eggers said.
Progress, he said, can be seen by Dreyfus’ strong showing last month when Lipper Inc. of New York presented its Lipper awards.
Dreyfus received a top 10 fund family award from Lipper for three-, five- and 10-year performance, and two of its funds — the Dreyfus Founders Mid-Cap Growth Fund and the Dreyfus Premier Greater China Fund — received fund classification awards by achieving the No. 1 total-return rankings in their respective Lipper categories for 2006.
Such success can be attributed to the new approach Dreyfus has taken to managing money, Mr. Eggers said.
“I think our position from being a fully integrated mutual fund company that managed most of the money that bore its name has changed to where we are much more of a retail distributor of Mellon’s family of institutional asset managers,” he said.
For example, Daniel Crowe of The Boston Company Asset Management LLC, a Mellon subsidiary, manages the Dreyfus Founders Mid-Cap Growth Fund.
And another Mellon unit, Hong Kong-based Hamon U.S. Investment Advisors Ltd., subadvised the Dreyfus Premier Greater China Fund.
Such arrangements have “given us capabilities that … have not necessarily been associated with Dreyfus,” Mr. Eggers said.
Those capabilities will expand with the acquisition of The Bank of New York, he said.
Although not known for its asset management, The Bank of New York is the service provider for many exchange traded funds and has been instrumental in bringing ETFs to market.
Mr. Eggers said that he would like to take advantage of that.
“We see this as a very real opportunity, and it’s a high priority for us once the merger takes place,” he said.
Mr. Eggers declined to elaborate, citing the fact that the merger between Mellon and The Bank of New York hasn’t been completed.
Well-known lion
Dreyfus appears to be taking the proper actions, said Burton Greenwald, a Philadelphia-based mutual fund consultant.
Although it was “shortsighted” of Dreyfus not to have taken advantage of Mellon’s stable of institutional managers until recently, now that the company is going that route, that should help ensure that it has a place in the merged company, said Mr. Greenwald, who once counted Dreyfus among his clients.
Although the Dreyfus brand has “suffered” recently, he said, it still has a lot of resonance with investors in the United States, and the lion the company uses to market itself is still very recognizable in the industry.
And the fact that Mr. Eggers appears to be contemplating ETFs also is a good sign, Mr. Greenwald said.
“Obviously, the ETF asset base is growing rapidly,” Mr. Greenwald said. “It’s difficult to break into that space, but the fact that Bank of New York is there with significant assets gives them a leg up.”
