Oppenheimer Rochester Fund Manager, Ron Fielding, Under Fire as Losses Mount

Mutual fund manager, Ronald Fielding, and Oppenheimer Rochester National Municipals fund are coming under increasing fire after losing nearly 50% of its value. According to Morningstar, Inc., Oppenheimer Rochester National Municipals fund ended up as the worst performer in the open-end municipal bond fund category in 2008.

Problems for the Rochester National Municipals fund add to a slew of setbacks for New York-based OppenheimerFunds. In recent months, the company has encountered a lengthy losing streak with several of its bond funds, including the Champion Income fund. After making bad bets on risky mortgage-backed securities, the Champion fund plummeted nearly 80% last year, making it the worst-performing taxable high-yield bond fund of 2008. On Dec. 12, the fund’s manager, Angelo Manioudakis, abruptly resigned from his position with OppenheimerFunds.

Meanwhile, several investors who unexpectedly lost huge amounts of their money in the Champion Income fund have filed complaints with the Financial Industry Regulatory Authority (FINRA), charging that Manioudakis and Oppenheimer failed to disclose the fund’s risks to them.

As for Oppenheimer’s Rochester National Municipals fund, its financial woes began in 2007, following the onset of the subprime mortgage debacle. As of Dec. 31, 2008, the fund had $3.6 billion in assets; three months earlier it was valued at $6.7 billion, according to a Jan. 8 article by Bloomberg.

The losses are yet another black mark against OppenheimerFunds, which owns the hedge fund firm Tremont Group Holdings. In late December, Tremont revealed it had gambled and lost more than $3 billion in the Bernie Madoff Ponzi scheme.

Now it’s Ron Fielding who’s in the hot seat for his questionable management decisions with the Rochester funds. For years, Fielding made his mark in the municipal bond world by buying up the riskiest and least desirable portions of the bond market, including sectors like tobacco and airlines. His gambles failed to pay off, however, when he bought airport bonds secured with airline company revenue following the terrorist attacks of Sept. 11. Another bad bet included the purchase of municipal bonds backed by a 1998 settlement with tobacco companies. A combination of anti-smoking efforts and lawsuits against cigarette manufacturers later proved to drastically reduce demand for the debt.

As a result, Fielding’s funds took on a lot more credit risk. Oppenheimer’s Rochester family offers 18 different bond funds - many of which have 25% of their assets invested in tobacco bonds. In the case of the Rochester National Municipals fund, its most notable holdings are tobacco and airline bonds. One key danger for the fund is the possibility of heavy redemptions in the future.

If that happens, the fund would be forced to sell some of its holdings. And in the current market environment, that means selling at well below par value. In what may be a sign such action is looming, the fund substantially increased its credit line with Citibank last month from $1 billion to $3 billion.

Fielding in all his wisdom took on risk which resulted in a failure. His adverse style in the municipal bond arena may have worked at one time, but market conditions are no longer what they used to be. Now, investors are paying the ultimate price for Fielding’s risk-taking behavior.