Tangled up in Ivy: Merrill’s Princeton Problem

Princeton University is steamed at Merrill Lynch for rebranding its captive mutual-fund operation Princeton Portfolio Research & Management.

As the New York Times reported this morning, Princeton University is steamed at Merrill Lynch for rebranding its captive mutual-fund operation Princeton Portfolio Research & Management, as the giant investment bank and brokerage attempts to find a wider market for its lineup of 108 funds. The University has demanded that the company find another name and, according to sources familiar with the matter, the Times story has sparked a flood of emails from alumni who are incensed at the idea that the prestige of their beloved Ivy League institution will be used to push mutual funds.

The brouhaha began after Merrill Lynch Investment Management CEO Robert Doll, who presides over $544 billion in mutual fund and other managed assets, indicated to both Registered Rep. and the Wall Street Journal on Tuesday that the name was chosen with the university in mind. The Times quoted a Merrill spokesman today, who said the name was chosen for the Princeton area, where Merrill has several offices, including the money-management unit. (Doll’s group is situated in Plainsboro, a former farm area a few miles up the road from Princeton, but light years away in terms of cachet.)

In a telephone interview, Doll told Registered Rep., “There’s no question that the association with Princeton University is a positive.”

Princeton officials, who have seen the university name applied to all sorts of businesses, apparently see no positive in associating with the Merrill name. “The university was not consulted about Merrill Lynch’s intention to trade on the university’s reputation in renaming its family of funds,” says Cass Cliatt, a university spokesperson. “It’s a matter of concern and we are addressing this with Merrill Lynch.”

In an attempt back away from that linkage and ward off a potential lawsuit, Merrill issued a statement: “The rebranded entity has nothing to do with Princeton University, was not named to suggest any association with the university and any statements suggesting otherwise are inaccurate,” Merrill said in a press release Wednesday. “Merrill Lynch has no intention of using Princeton University's name or reputation to support the brand.”

The university’s legal team was not satisfied with Merrill’s retreat, saying through Cliatt, “It’s not sufficient.” The concern is that consumers will assume there is some link between the university and the money-management operation and/or that Merrill is somehow responsible for the university’s$12 billion endowment, the university spokesperson says.

Merrill’s attempt to rebrand its funds is part of a growing trend. In some cases, companies are trying to bury a tainted brand (as in Wells Fargo’s decision to drop Strong after the fund family was implicated in the mutual fund scandals). Sometimes it’s the result of a corporate change: After its spinoff from American Express, Ameriprise rechristened its funds RiverSource. In Merrill’s case, the name change is intended to give its funds and managed accounts wider appeal for non-Merrill advisors--and perhaps to remove the stigma of the “house” brand within the company.

Since Doll came on board as head of the money-management unit in late 2001, the average Merrill domestic fund sports a three-year annualized return of 16.99 percent as of Dec. 31, 2005, according to Morningstar. That tops the 16.28 percent return for the average U.S. mutual fund. On a one-year basis, the numbers are even more compelling. The average one-year return for Merrill’s domestic lineup shows a 10.27 percent gain, as compared to the 6.86 percent return of the average U.S. mutual fund. As for the more critical five-year numbers, Merrill’s 3.25 percent return outpaces the industry average of a 2.41 percent return. MLIM’s lineup now includes 42 four- and five-star overall Morningstar rated funds.

But a better performance track record hasn’t yet translated into higher sales. In fact, investors have withdrawn more than $34 billion on a net basis from Merrill’s stock and bond funds since 1998, according to Financial Research Corp. (FRC) of Boston. Assets held in long-term funds stand at $61 billion, FRC says.

Will rebranding enable Merrill to pull in more assets? Don Cassidy, senior analyst at fund research firm Lipper of New York, isn’t so sure. "The whole thing seems based on hope that users – professionals or the public – will not read the prospectus," he says. "If the intent is to deflect anyone’s attention from the fact that Princeton equals Merrill, all the current uproar from the university is doing great harm since it is now a big noisy news story."

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