NU Online News Service, Nov. 13, 2003, 1:29 p.m. EST – Pilgrim Baxter & Associates, Wayne, Pa., the unit of Old Mutual P.L.C., London, that advises the PBHG Funds, says its founders, Harold Baxter and Gary Pilgrim, are stepping down because of concerns about Pilgrim’s investment in a hedge fund that invested in the PBHG Funds.
Baxter has been chairman and chief executive of Pilgrim Baxter since he helped start the company in 1982. Pilgrim, a founding partner, has been a fund manager at the company and a supervisor of daily operations for trading and account control.
David Bullock, who joined Pilgrim Baxter in July as president and chief operating officer, will take over from Baxter as chief executive of Pilgrim Baxter, and from Pilgrim as president of the PBHG Funds and as president of the PBHG Insurance Series Fund.
Scott Powers, chief executive of Old Mutual Asset Management, the company that runs Old Mutual’s asset-management businesses, will become the chairman of Pilgrim Baxter, Pilgrim Baxter says.
Bullock attributes the departures of Baxter and Pilgrim to an internal review of past practices that Pilgrim Baxter began in September.
“That review, conducted with the assistance of independent experts, has raised questions about decisions the prior management team made before December 2001, when they sought to eliminate all market timing in the PBHG Funds,” Bullock writes in a letter to the PBHG Funds’ shareholders. “That review has brought into focus conduct that was not, in our view, consistent with the highest standards of professional and ethical behavior.”
Pilgrim Baxter says the review turned up information about a “passive investment on the part of Mr. Pilgrim in a private investment limited partnership, unaffiliated with Pilgrim Baxter, that, with Mr. Baxter’s knowledge when he was CEO, actively purchased and redeemed shares of certain PBHG Funds and other mutual funds using a quantitative tactical asset-allocation model based solely on publicly available information.”
Pilgrim began investing in the limited partnership in 1995 and has continued to invest in the partnership to the present, but the limited partnership’s investment activity in the PBHG Funds was limited to the period from March 2000 to December 2001, Pilgrim Baxter says.
“There is no evidence that Mr. Pilgrim, or any other employee, provided the limited partnership with any nonpublic information about the PBHG Funds,” Pilgrim Baxter says.
Bullock writes in the shareholder letter that Pilgrim Baxter is acting to resolve the issue by having Baxter and Pilgrim resign.