American Funds parent Capital Group plans more job cuts

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Hard times for the mutual fund industry will mean more layoffs at L.A.-based titan American Funds, and no merit pay increases this year for remaining employees.

It’s another sign of the drastic shrinkage of the financial services industry as the stock market has suffered its biggest dive since the 1930s: Layoffs and pay freezes had been virtually unheard-of at American Funds’ parent firm, Capital Group Cos., in its 80-year history.

Privately held Capital Group -- the second-largest U.S. manager of stock and bond mutual funds, with about $700 billion in assets at American Funds -- has a reputation for being benevolent to its workers. That has kept turnover low, fostered staff loyalty and contributed to the millionaire ranks of Southern California.

But after its fund assets dived from $1.1 trillion a year ago, Capital Group cut 500 jobs worldwide in January, spokesman Chuck Freadhoff confirmed. That reduced total headcount to about 9,000.

Many of the January cuts were in technology and office-services jobs, Freadhoff said. The next wave is expected to be company-wide, he said, ‘given market conditions and our need to cut costs.’

The company’s new layoff warning was first reported Tuesday by the online fund-industry newsletter ignites.com.

Capital Group employs about 2,500 people in California, mainly in Los Angeles and Orange counties. That includes portfolio managers, analysts and customer-service representatives. . . .

The company had said in January that senior managers wouldn’t get merit pay raises this year, Freadhoff said. That freeze now has been extended staff-wide, he said.

Other mutual fund giants, including Fidelity Investments, also have been paring staff as assets have shrunk.

Fund companies charge management fees as a percentage of assets. So as the market value of their investments has plunged, and as some investors have pulled money out, fee income also has slumped.

American Funds manages some of the country’s biggest stock mutual funds, including the $103-billion-asset Growth Fund of America. Historically, one of the company’s marketing points has been that its conservative, ‘value’-oriented investing style limited losses in down markets.

But deep declines in many blue-chip stocks slammed American Funds’ portfolios last year. Growth Fund of America dived 39% in 2008, compared with a 38.6% loss for the Standard & Poor’s 500 index, including dividends.

This year, however, Growth Fund is down 6.9%, compared with a 14% loss for the S&P index.

-- Tom Petruno