By Svea Herbst-Bayliss
BOSTON (Reuters) -Mutual fund manager Friess Associates is challenging its firing by asset manager Affiliated Managers Group (NYSE:AMG) and is asking investors to reject the proposed transfer of more than $1 billion in funds to its successors, according to a regulatory filing made on Thursday.
Friess Associates, which managed Brandywine Funds on Affiliated Managers Group's (AMG) platform since 2013, filed preliminary proxy materials with the Securities and Exchange Commission. Reuters reported the firm's plans before the filing, which protests the firm's firing and points out that investors had no say in the termination.
The filing lays the groundwork for a fight in the normally staid mutual fund industry, pitting AMG, a publicly traded asset manager valued at $6.5 billion that invests $716 billion in assets, against one of its subadvisers, Friess Associates, a nearly 50-year old investment firm specializing in fast-growing U.S. stocks.
"AMG Funds’ board of trustees acted in the best interests of shareholders in taking action to lower management fees and offer a high-quality, more differentiated lineup of funds," an AMG spokesman said on Thursday.
Friess Associates built the Brandywine brand into a magnet for conservative investors who wanted capital preservation plus solid returns.
Last month, the relationship between Friess Associates and AMG ended when AMG fired Friess as the subadviser on the AMG Managers Brandywine Fund and the AMG Brandywine Blue Fund. The two funds have each returned an average 11% a year over their lifetime, beating both the S&P 500 and Dow Jones Industrial Average returns.
The combined Brandywine assets of $1.16 billion have been assigned to other managers on the AMG platform. Investors in the funds, now called the AMG Boston Common Global Impact Fund and the AMG Veritas Global Real Return Fund, will be asked to approve or reject the move at a May 18 special meeting.
AMG filed its proxy statement on April 9, explaining Friess was removed as part of a "strategic repositioning of the AMG Funds complex" so that all portfolios are managed by an AMG affiliate subadviser. AMG also removed other unaffiliated subadvisers including DoubleLine Capital, Fairpointe Capital and Loomis Sayles.
In its filing AMG laid out the amount of fees that will be paid. The Global Impact Fund's net expense ratio will be cut to 0.93% from 1.11% and the management fee for the fund will be cut to 0.73% from 0.88%. Previously Friess received 0.78% of the 0.88%. Boston Common will now receive 0.44% of the 0.73%, leaving a bigger chunk for AMG.
The Global Real Return fund's net expense ratio will be cut to 1.16% from 1.17%. The fund will pay a fee of 0.88% of its daily net assets to the investment manager. Previously, Friess received 0.78% of that while Veritas will now receive 0.57% of the total. The remainder goes to AMG.
“The Investment Manager appears to benefit more from the fee changes than fund shareholders,” Friess said.
AMG said in the regulatory filing made earlier in April that if shareholders fail to approve the move, the funds may be liquidated.
But Friess Associates said that investors are being harmed because their money is no longer being managed the way it was when they first invested.
The Global Impact Fund follows an ESG mandate and the Global Real Return Fund follows a real return strategy including short positions in global index futures.
As a result, many investors will be hit with higher taxed short-term gains, Friess said.