fidget as the mouthwatering aroma of greens and steak waft from the kitchen to the living room. It’s a night when Profit feels he’s doomed to become the first former professional athlete to turn down a home-cooked meal. He looks at his watch, frowns, and bids adieu. With a turn of the ignition, he’s off racing across D.C.’s suburban sprawl in search of another thousand dollars or so in new business. His next customer, a retired brigadier general, happens to be a family friend who’s considering shifting his assets around. Unfortunately, Profit’s in for a long discourse that will last well into the evening, a task that the carry-out pizza on the general’s menu doesn’t make any easier.
So goes the business of selling a brand new mutual fund. Any breather Profit gets from managing investments for individual clients is taken up in an elongated exercise in guerrilla marketing to one investor at a time. His competitors–the teams of managers and executives at the Fidelity Magellans, Vanguards and Putnams–needn’t go through such paces. Big-fund companies, called complexes, have extensive networks of brokers and sundry pitchmen. Directors at the mammoth funds probably spend weekends lounging, roughhousing with the kids or toying with an automated putter. Meanwhile, Profit is busy conducting a one-man grassroots campaign in the name of Eley’s investment prowess. “That’s the beauty of a lot of smaller, newer funds,” says Don Phillips, president of Morningstar, the mutual fund research firm. As an observer of the mutual fund industry, Phillips says the large complexes simply don’t offer the personalized service that Profit’s new outfit does. “Too often, you’ll find that a number of uninspired funds come into existence because a big corporation decides it has a hole to fill and then shifts money into a new unit. It’s better to see that someone with a unique way of managing money can go out and create a fund to showcase that ability.”
As personable as Profit’s approach seems, he’s probably in for his share of hard work for the next few years. That’s regardless of whether Randall Eley, who’s managing the fund’s money, continues to trounce the competition in his investment category. (Eley has produced a 5.6% gain since the fund’s inception in November, with Profit Lomax’s net asset value at $10.56 a share as of mid January, up from a $10 initial price.) In part, new funds are slaves to the press and must wait their turn for ink. No matter how good their track records, notoriety often comes only three years after inception once a firm like Morningstar weighs with its first rating. Until then, new funds run only as far as enthusiasm can carry them.
The rewards for patience, however, can be well worth the cold calls and sales pitches sealed in handshakes. Mutual funds enjoy fat profit margins that run as high as 30%-40% at the bigger companies in the industry. Start-up costs–such as legal fees, licensing fees, initial contributions and the outlay required to research the stocks and