From RB:
This site is nice..shareholder's taking matters into their own hands!
March 24, 2000
The Buccaneer Fund
By Paul R. La Monica
COMPANIES WITH MEDIOCRE management, severely beaten-down share prices or little in the way of positive publicity, watch out. There's a new mutual fund in town, and it's coming to get you.
The Allied Owners Action Fund (sorry, no snapshot available) is an activist-shareholder mutual fund with the explicit aim of targeting underperforming companies and shaping them up.
Sure, there are big-time pension funds like Calpers and fund managers like the retired Michael Price who have been known to raise a ruckus when an investment is in trouble. But they're defensive in nature; they react only when a company screws up.
Allied Owners, on the other hand, is looking to be proactive. It wants to force companies to do better from the outset, not react to problems when they occur.
Sounds interesting, right? I think so too. Any effort to shape up corporate America should be applauded. But Allied Owners who? Who are these people? This isn't exactly a new Fidelity or Janus fund we're talking about. Nonetheless, I think Allied might be worth a look for risk-tolerant investors.
The fund's co-founders are two academics, Martin Stoller, a professor at Northwestern's Kellogg School of Management; and Aaron Brown, a finance professor at Yeshiva University in New York. (They met through Stoller's wife, who went to college with Brown.) Brown's wife, Deborah Pastor, a former trader at J.P. Morgan and the Bank of Montreal, is the fund's portfolio manager. (Though, unlike most portfolio managers, she will only buy and sell the fund's stocks. Brown will be in charge of stock selection.)
So why did two professors decide to become investment revolutionaries? "A little hell-raising, years of being patronized, lectured and ignored by smug managers and board members who had just lost good chunks of my money left some legacy," Brown says. "But mostly it was the internal logic of the idea. It grew on its own."
Translation: They got burned on a stock ? a subprime lender called United Companies that went bankrupt last year ? and they figured that rather than suffer in silence they would create a fund targeting poorly performing companies in need of a wake-up call. After United filed for bankruptcy last year, Stoller galvanized a large group of irate shareholders through Yahoo! Finance's message board. As a result, a shareholder alliance led by Stoller and Brown will be working with a bankruptcy court-approved shareholder committee to reorganize the company. (Proof positive that message boards can be used for more than just scamming, spamming and slamming.)
Allied Owners Action Fund intends to slowly accumulate stock in a company (just under 5% in most cases, to avoid having to file a 13-D with the SEC disclosing its ownership and file for every subsequent transaction) and then list its holdings on an affiliated Web site, eRaider. But here's the interesting twist. Once the fund lists its holdings (or as the site describes them, "target companies"), Brown and Stoller will use the site's message boards to encourage fund and individual shareholders to come up with plans to increase targeted companies' stock prices.
Allied wants to attract shareholders with strong opinions on how to fix struggling companies. If you're one of these investors, go to eRaider. You won't be disappointed by its incredibly bold rhetoric. Here's a description of corporate boards: "To put it diplomatically, most corporate boards suck. They fail to provide adequate oversight of the company, are structured in ways that almost force them to be ineffective, and are too easily bamboozled by management." (Now tell us what you really mean!)
The site and company's press material is full of swashbuckling pirate imagery. For instance, eRaider's logo is a cannon, and its slogan ? "If they don't take care of business, we will" ? is similarly marauding.
I like the whole buccaneer motif (I have fond childhood memories of the Pirates of the Caribbean ride at Disney World), and dammit, we need more swagger in the financial community. Wouldn't you just love to see someone showing up at a shareholder meeting with a parrot on his arm, a wooden leg and an eye patch? The thought just cracks me up. "Ahoy mateys. I'm Greenbeard, the shareholder activist pirate. If you don't boost me stock price quick I'll make ya walk the plank! Aaargh! Yo ho ho and a bottle of rum!"
Now, despite all the pirate allusions ? and the use of that very 1980s term "raider" ? Brown and Pastor say their fund's goal is not to take over companies or even to overhaul them. The fund itself also will not get involved in shareholder lawsuits or proxy battles. This isn't some "Barbarians at the Gate" redux. The goal is to work with management to improve shareholder value and only resort to major changes if management resists.
Pastor stresses the fund is looking for companies to buy and hold for the long term. Turnover in the fund is expected to be minimal, no matter what members of the message boards are saying. "Once it's on eRaider it's a passing of the baton," says Pastor. "I won't take my cues from the message boards."
For the time being, the fund manager is buying small-cap stocks with little or no analyst coverage. The fund will probably never have more than 40 stocks at any given time. Brown says many of the stocks he's considering are simply diamonds in the rough; small companies with good stories that are being overlooked by Wall Street.
As yet, no stocks have been listed on the eRaider site, and Pastor won't name which stocks the fund is looking to buy. She did say, however, that the fund should be ready to announce its first target stock within a month.
I think the fund might make a wise choice as part of a diversified portfolio. The fee is tiny ? just 1% of assets annually and there are no loads. The minimum investment is $2,500 (not a paltry sum of course, but not exorbitant either). The fund, which just opened on March 10, only has about $1.1 million in seed money so far. But it has received about 100 online applications a day since it opened, Brown says.
Of course, like any new stock or fund, an investment depends entirely on your appetite for risk. Brown and Pastor admit Allied is certainly not for the faint of heart. "I don't want your rent money. Don't send me your rent money," Pastor says. If the fund looks too risky, Pastor advises to watch its performance for a while. "Wait two or three years and if we're good we'll still be around," she says.
I think they will be. Despite all the big winners on the Nasdaq, there are still plenty of value stocks out there that could benefit from a buccaneer-like assault. |
