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(Reuters) – In January, BlackRock Inc made a significant, but easy-to-miss change in the fund literature for three of its mutual funds.

In previous prospectuses, the New York-based firm said a “proprietary multi-factor quantitative model” formed the investing strategy for its $3.7 billion Large Cap Series funds, managed by retiring Chief Equity Strategist Bob Doll.

This year’s fund literature said the investing model used “quantitative factor models generated by third-party research firms.”

Typically such a change indicates a shift in a fund’s methodology. But there was no shift in the investment process.

Instead, the new description came after the funds’ board of directors learned that the investment models used for Doll’s funds were never proprietary and had been based on other firm’s models, according to two people familiar with the situation. Doll was not the one who alerted the company about the issue, they said. The two people did not want to be identified because they were told about the situation in confidence.

Doll is the lead manager of the BlackRock Large Cap Growth Fund, Large Cap Value Fund and Large Cap Core Fund.

The change was made just months before 57-year-old Doll, a regular on CNBC who is best known for his annual predictions and perennial bullish outlook, announced his retirement. Doll’s last day is June 30.

Bobbie Collins, a BlackRock spokeswoman, said in an e-mailed statement that the change in language came about in the “regular process of keeping the board up to date on fund management.”

She said the firm changed the prospectus “in order to provide more detail about how the model functioned and the methods used to construct the portfolio.”

The change is significant because investors who thought they were buying an all-Bob Doll investing strategy were actually getting a mix of off-the-shelf models that he then tweaked.

Some investors may have invested with Doll specifically because they believed the entire process was his own, said Russ Kinnel, director of mutual fund research at Morningstar Inc.

In response to questions from Reuters, Doll said in an e-mailed statement that he had used a mix of several third-party models for many years.

“In some cases, I had the models customized for us to reflect my view of key input factors,” Doll said. “I then applied a relative weighting to these models. We used these outputs as one part of my investment process, which also included a fundamental analysis.”

For the past one, three, five and 10 years, the three funds have underperformed their benchmarks, according to Lipper.

PROPRIETARY VS. THIRD PARTY

In quantitative equity investing, managers use models, or screens, to choose stocks for their portfolios.

Calculations for the models can include everything from valuation, risk or how much cash a company returns to investors, and – in some cases – quantitative models include complex behavioral finance attributes.

Fund managers can create their own or buy third-party models, which are usually produced by research firms.

Daniel Celeghin, a partner at Casey Quirk & Associates, a Darien, Connecticut-based consultant, said there is often a bias among money managers against buying third-party models.

“Most buyers would (ask) ‘If this model is really good, why aren’t they keeping it for themselves?'” he said.

Even so, most quantitative equity fund managers who buy third-party models tailor them to meet the needs of their portfolios. That can lead to ambiguity about what is – and is not – proprietary, fund experts said.

“(Managers) can use the inputs, or models, as a small part of that process or a meaningful part,” said Vadim Zlotnikov, chief market strategist at Bernstein Research, who said he was not aware of the BlackRock situation.

A fund board signs off on each fund’s registration statement – which includes details on its investment strategies and methodologies – attesting to its accuracy. It is the fund manager’s responsibility to keep the board informed of details of the strategies and investment process.

From an investor’s perspective, “the fact that the funds were using third-party models is not that big a deal,” said Jeff Tjornehoj, head of research at Lipper. “But from a (fund) board perspective I could see why it would be important to disclose who owns what when it comes to the research.”

(Reporting By Jessica Toonkel; Editing by Jennifer Merritt, Walden Siew and Dan Grebler)