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"You Don't Wash a Rental Car"

That's a great quote from this article in BusinessWeek titled:

Fund Managers: Betting Their Own Money.

A Morningstar study shows that funds with manager investment may do better than their peers. But they remain a minority.

There are more than a few gems in the article, like this one:

More than half of the 4,383 U.S.-based funds in the 2009 study had no manager investment; 413 had investments of over $1 million. "It can be hard for younger managers who've just been promoted to invest more than $1 million in their funds," says Laura Lutton, Morningstar's editorial director of fund research. "But I have a hard time understanding why so many managers would not invest anything at all."

Hmmmm....because they know their funds are crap, maybe?

And I suspect the absolute dollar amount a manager has in his fund is probably much less relevant to its future performance than the percentage of his liquid net worth that is in the fund. But I'm guessing that's not data that will ever see the light of day.

Value investors appear to be over-represented in the study, which also mentions Davis Advisors as a shop that eats its own cooking, as well as closet spokester Bruce Berkowitz again.

Here are some other well-known names that are in it together with their investors:

Four years ago, Royce & Associates, a New York-based fund firm with $28 billion in assets, created a policy requiring lead portfolio managers to invest at least $1 million in their funds. Co-portfolio managers must invest $500,000 and assistant managers $250,000. "If you're young and don't have enough money, we will defer your quarterly bonus into the fund," says Jack Fockler, Royce's managing director. As a result, the firm's 100 employees have $100 million invested in its funds.

Then there's Southeastern Asset Management, parent of the three Longleaf Partners Funds. "If you work for Southeastern or your spouse works for Southeastern, you cannot own individual stocks or other non-Longleaf mutual funds," says Lee Harper, a Southeastern spokesperson. Spouses of Southeastern employees who don't have Longleaf funds in their companies' 401(k) plans must get approval from an "exception committee" before participating. The firm's 55 employees and its charitable foundation are the funds' largest shareholders, collectively owning $1 billion in fund shares. The Longleaf Partners Fund has beaten 96% of its peers over the past 10 years.

Fund companies with heavy manager investment tend to be boutique firms. Yet at some big fund companies, including Janus, T. Rowe Price and Dodge & Cox, manager ownership is also part of the corporate culture. Janus in particular has long had a culture of ownership. Its 54 analysts and money managers have $113 million invested in its funds. Since 2005 the firm has paid half of fund manager/analyst bonuses in fund shares, and shares vest over four years. "The day I became manager of Janus Fund, I (MUTF:JANSX) invested in excess of $1 million in it," says Jonathan Coleman, Janus' co-chief investment officer and co-manager of the firm's $9 billion flagship Janus Fund. "We have a saying: 'You don't wash a rental car.' We don't treat portfolios as rental cars. We treat them as owners."