Famous money fund managers, Bruce Berkowitz of Fairholme Capital Management and Jeffrey Gundlach of Doubleline Capital are closing their flagship funds to new investors.
Based on its filing with the Securities and Exchange Commission (SEC), Berkowitz’s Fairholme Fund (MUTF:FAIRX) will suspend selling its shares to new investors, including new investors seeking to buy its shares directly from the fund or indirectly through financial intermediaries, effective on February 28.
The value oriented Fairholme Fund (MUTF:FAIRX) delivered 36 percent gain last year and outperformed 99 percent of its peers. Its performance doubled the 16 percent return of the Standard & Poor’s 500 Index.
In January 2010, Berkowitz was recognized by Morningstar as U.S. stock manager of the decade. As a result, he earned the confidence of many investors and Fairholme Fund’s assets expanded to $17 billion in 2011. However, the largest holdings of the fund struggled that year and investors decided to cash out. Berkowitz was forced to sell stocks to be able return investor’s money.
Last year, the fund once again outperformed the Standard & Poor’s 500 Index. Some people in the industry believe that Berkowitz decided to close his fund to new investors to avoid a repeat of the situation in 2011.
Bruce Siegel, general counsel at First Long Island Investors LLC said, “My reading is that they are afraid hot money will come in and dilute performance. They are looking out for the interests of current shareholders.”
Aside from its flagship fund, Berkowitz is also closing its two other funds to new investors including Fairholme Focused Income (MUTF:FOCIX) and Fairholme Allocation (MUTF:FAAFX).
On the other hand, Gundlach whose flagship fund DoubleLine Total Return Bond N (MUTF:DLTNX) has been generating positive returns over the past two and a half years. At present, the fund has $38 billion assets under management. The Businessweek described the fund as the “fastest-growing mutual fund start-up in history.” Total AUM at DoubleLine is approximately $55 billion.
Commenting on the fast growth of the fund, Gundlach said, "When we started the company, our stretch goal was to reach $50 billion of [assets under management] within three years. We do not have a goal of trying to reach $100 billion any time in the foreseeable future."
According to him, he is planning to close DoubleLine Total Return Bond N (MUTF:DLTNX) to new investors by the end of 2013 or earlier in 2014 to keep the size of the fund manageable.
"I don't think we can add another $50 billion to [Total Return Bond] and still manage it the way we want to mange it. What you really don't want to do is what the young guys do, and that is take every single dollar that is dangling in front of you,” added Gundlach.