BOSTON (CBS.MW) – Pilgrim Baxter & Associates, which settled market-timing charges for $100 million earlier this year, said it changed its name to Liberty Ridge Capital on Friday, a move analysts said is aimed at restoring the firm’s image.
The name change, inspired by the company’s location on the Liberty Ridge hillside of historic Valley Forge, doesn’t affect any of the PBHG Funds, which Liberty Ridge advises, the Wayne, Pennsylvania-based firm said in a release.
“We’ve instituted significant reforms since the departure of Pilgrim Baxter’s founders last year, and we’re committed to providing our employees an opportunity to define a new identity for the firm,” Chief Executive Officer David Bullock said in the release.
Founders Harold Baxter and Gary Pilgrim stepped down in November after an internal review revealed questionable practices. Later that month, New York State Attorney General Eliot Spitzer and the Securities & Exchange Commission filed charges against firm and its founders for allowing hedge funds to market time PBHG funds whose prospectuses restricted it.
Market timing involves rapid buying and selling of fund shares to exploit inefficiencies in mutual fund pricing. Though not illegal per se, many mutual funds try to prevent it because it can harm long-term shareholders.
Morningstar Inc. senior analyst Paul Herbert said Pilgrim Baxter’s name change is no surprise.
“There was a lot of brand equity lost over not just the past year, but over time in the investing community with the name Pilgrim Baxter,” Herbert said, adding that poor performance and volatility in some of the firm’s funds soured institutional investors.
Herbert cited PBHG Growth Fund
which has lost 6.2 percent this year through Thursday, ranking it near the bottom of its mid-cap growth peers, according to Morningstar.
According to the SEC’s complaint, Pilgrim, who founded the firm with Baxter in the early 1980s, invested in a hedge fund called Appalachian Trails in 1995. Both Pilgrim and Baxter knew Appalachian’s trading strategy involved rapid trading of mutual funds, the complaint alleged.
The SEC further alleged that in March 2000, Appalachian, with the approval of Pilgrim and Baxter, began to market time several PBHG funds, mainly PBHG Growth Fund, which Pilgrim managed. From March 2000 to December 2001, Appalachian made a profit of about $13 million through short-term trades in PBHG funds. Pilgrim pocketed about $3.9 million of that, the complaint alleged.
Baxter, meanwhile, improperly gave non-public portfolio information to another PBHG client, which other market timers used to both market time PBHG funds and to advance their investment strategies through other financial and brokerage firms, the complaint alleged.
On June 21, Spitzer and the SEC announced their settlement with Pilgrim Baxter. The firm agreed to disgorge $40 million to injured investors and pay $50 million in civil penalties. In a separate agreement with Spitzer’s office, it agreed to cut management fees by 3.16 percent over five years, a reduction valued at $10 million.
Charges against founders Pilgrim and Baxter are still pending in actions brought by both by the New York State Attorney General and the SEC’s Philadelphia office, said David Horowitz, assistant district administrator in the Philadelphia office of the SEC.
Since the scandal, the firm has taken steps to fight short-term trading. On June 1, it instituted a 2 percent redemption fee for most shares redeemed within 10 calendar days of purchase. Morningstar’s Herbert also cited improved investor education offered through the firm’s Web site.
“They certainly have gone through a lot of reforms over the past year, quite a bit of it’s by settlement,” Herbert said. “But I think they’ve also tried to kind of clean up the image.”
Liberty Ridge is a unit of London-based insurer Old Mutual Plc. (OML)
View more information: https://www.marketwatch.com/story/pilgrim-baxter-changes-name