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Thursday, March 9, 2006

Fund Mergers On The Upswing

by: Armie Margaret Lee

Wedding bells tolled with more frequency in the mutual fund industry in 2005 than in the last few years. A total of 222 mutual funds were folded into other funds last year, or 66 percent higher than in 2004, according to data from Morningstar.

The Wall Street Journal wrote on the study, noting that the 2005 figure also represents the highest number since 2001, when more than 530 funds were merged after the dot-com bubble popped.

The pairings, according to the report, came amid pressure faced by financial-services firms to lower costs, and the merger activity isn't seen to wane as Wall Street giants increasingly feel the need to abandon the fund business. The most recent example is Merrill Lynch, which announced last month that it is selling its investment-management unit to BlackRock Inc.

Independent fund firms, meanwhile, are finding that they can better deal with regulations and rising competition from other investment products if they join forces with other firms rather than going at it alone.

Aside from enabling companies to slash overhead costs, mergers also gives some firms the opportunity to eliminate poor-performing funds, thus boosting the overall performance of the fund family. 

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