Waddell & Reed Fires Fund Manager, Names New President

Morningstar analyst says Waddell's fixed-income group is 'stretched' after another departure in May

Two high-profile departures at Waddell & Reed have caught Morningstar's attention. Two high-profile departures at Waddell & Reed have caught Morningstar's attention.

Waddell & Reed Financial (WDR) says that Derek D. Burke is president of its broker-dealer starting Monday.

The firm made the announcement on Friday, one day after it fired William Nelson, portfolio manager of its high-income mutual funds — Ivy High Income Fund (WHIAX), Waddell & Reed Advisors High Income Fund (UNHIX), Ivy Variable Insurance Portfolio High Income, and the closed-end Ivy High Income Opportunities Fund (IVH), “for cause” as laid out in his employment contract. It added that Nelson’s termination was “unrelated to his portfolio management responsibilities.”

This news comes on the heels of the departure of Ryan C. Caldwell, co-portfolio manager of the company’s Asset Strategy portfolios.

Morningstar has put the Ivy High Income Fund under review, and an analyst says the team is "stretched."

In mid-May, W&R said Caldwell would stay on as a company consultant. But in late June, it stated that the deal with the ex-portfolio manager had “not come to fruition and is not being pursued.”

W&R added, “After further discussion and consideration, it was determined that the consulting agreement was not essential to the ongoing investment process.”

Fund Team 'Stretched'

According to Morningstar, the Ivy High Income Fund has about $12 billion in client assets.

“We most recently had rated this fund Neutral, but we now have moved our Morningstar Analyst Rating to Under Review,” said Kathryn Spica, CFA, in a report on Friday.

“The departure of another fixed-income manager leaves an already thinly resourced team stretched,” she added.

“Nelson has been replaced by Chad Gunther, an 11-year veteran at Waddell & Reed. He was previously an assistant manager of the fund,” the Morningstar analyst wrote. “With the departure of two senior team members and no replacements, the firm's fixed-income resources are relatively small given its significant asset base.”

Nelson joined W&R in 1995 and had managed the High Income Fund since 2008. He took the helm of the Ivy High Income Fund in late 2013 after then-manager Bryan Krug left the firm, Spica notes. 

“We are confident that Chad, and the high-income team, will continue to successfully manage the investment process that has led to the funds’ competitive performance over time,” said Philip J. Sanders, chief investment officer of Waddell & Reed Financial, in a press release. “This team is well-experienced, is steeped in a successful investment process, and looks forward to continuing and expanding its major role in the funds’ success.”

As for Caldwell’s exit, Morningstar says he “was a key contributor, and his departure is a loss.” The research firm lowered its rating on the Ivy Asset Strategy Fund to Neutral from Bronze.

Michael Avery, who has managed the Asset Strategy portfolios for 17 years, continues as portfolio manager and leads the five-member Asset Strategy team, according to W&R.

“The fund remains in very good hands; we have a process that is strong, seamless and repeatable,” said Avery, in a statement. “As we actively seek to add to our experienced team from inside our organization, we are looking to people who currently have portfolio management experience with solid performance in their own right.”

Calls to W&R were not returned as of press time on Monday.

Broker-Dealer Leadership

The recently tapped Burke was formerly CEO of First Investors Advisory Services and president of First Investors Management, which has about $10 billion of assets under management via an affiliated broker-dealer with more than 500 registered financial advisors. He worked previously for UBS, New York Life and the Securities and Exchange Commission.

“Derek brings strong experience in specific aspects of our business and understands the unique nature of our business model,” said Thomas W. Butch, executive vice president of Waddell & Reed Financial and chairman and CEO of Waddell & Reed, in a statement.

“As our Advisors Channel has grown in sales, productivity and complexity, we have come to believe that adding to our talented executive team will help to support our continued growth,” Butch added. “Derek has the ideal background to help us guide that growth.”

Overland Park, Kansas-based W&R has about 1,750 financial advisors and $44 billion in client assets in its broker-dealer operations. Overall, it has about $131 billion in AUM.

According to Investment Advisor’s 2014 Broker Dealer Reference Guide, W&R’s advisors produced a total of $426 million in revenue in 2013, about $160 million of which was fee-based. Its reps had average yearly fees and commissions of close to $200,000 each.

“Waddell & Reed has a differentiated position in the marketplace, with a strong growth model,” said Burke, in a statement. “Joining the firm with the opportunity to help extend its growth and help advisors connect with investors around the country is a singular opportunity, and I am pleased to become a member of the team.”

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