The Feeling Is Mutual

A bevy of black-managed mutual funds is bringing new investors into the market, B.E. checks out what they have to offer.

the last three years, leading Wall Street Week host Louis Rukeyser to call him “perhaps the best money manager you’ve never heard of.” Eddie Brown, who runs the Brown Balanced, Equity and Small Company funds, is no also-ran either, having routinely outdone the S&P 500, the industry’s most quoted benchmark.

High-flying fund managers they may be, but that doesn’t mean they’re spending days jetting about or checking stock quotes in a limousine. It’s not uncommon to spot Bowles canvassing a church convention like a Baptist preacher combing through a revival. “You get to know your first investors very well because many of them are friends and family,” she says. “Those people are depending on you.” Eugene Profit, meanwhile, put thousands of miles on his odometer last year driving about every weekend drumming up new business. “There are lots of car trips to social organizations and churches,” he points out. “When it’s you signing the check, you realize you just don’t have the money for direct mailings and the various types of literature you might get from a Fidelity or Vanguard.”

The benefits of that kind of homespun, personalized approach are twofold. First, it’s this kind of face-to-face interaction that’s winning new accounts. Beyond that, it’s especially important for African Americans who haven’t gotten one-on-one time with the investment world. Having a Profit or a Bowles as a personal usher into the market is reassuring.

For the upstart funds, though, it seems like the colossal Vanguard and Putnam funds have it made. To establish a new fund, a parent like Fidelity simply plops a few million of its $5 billion or so in assets and then throws part of a $300 million ad budget to work to get the word out. For an institutional money manager who gets tens of millions of dollars in a single account, however, running a new fund and drumming up a couple of thousand of dollars at a time amounts to an exercise in patience. Annual expenses add up to about $150,000, and include filing paperwork in all 50 states and with she Securities and Exchange Commission (SEC), as well as out sourcing a company to pick up investor calls and answer inquiries. Experts say to run at its most profitable level, a mutual fund needs to gather $10 million or more in assets. Before that, money managers are basically subsidizing the fund’s start.

Fund managers have a couple avenues to round up new investors. One option is to pay brokers a commission–called a load–to hawk the fund. More and more, though, consumers balk at giving up anywhere from 2%-4% of their gains. That’s a trend Lou Holland picked up on when he decided his growth fund would charge no-load. The problem is, running a no-load fund puts a money manager on a tightrope to keep expenses in check– under 2% of assets–as the fund bulks up. That rules out any major advertising since getting the message out in a nationwide ad campaign is just too costly.


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