Today, two firms announced re-openings of funds that had been closed to new investors. Fremont Investment Advisors unsealed its US Micro-cap Fund today after seven months on the shelf. Firsthand Funds will re-open its Technology Innovators Fund, closed at the end of 1999, on February 1.

Both funds experienced gushing inflows, and shut the doors to new investors to maintain investment manageability. On the other side of the market rollercoaster, the firms are confronted, if anything, with the opposite problem.

At the time Fremont's micro-cap fund had closed in March, it held $1.4 billion in assets under management. Today, the fund has approximately $700 million. While some of the drop is accounted for in the firm's NAV, the fund has clearly experienced substantial redemptions.

"I think a lot of this has been NAV, although the fund was only down ten percent for the year in 2000," said Allyn Hughes, vice president of marketing for Fremont. "There have been redemptions. I think everybody's got redemptions and that's the nature of the beast right now."

According to Hughes, the redemptions have been met by Bob Kern, the fund's manager, who generally maintains cash levels of up to twenty-five percent. Kern asserted that the re-opening is timed to opportunistically invest in micro-caps that have become bargains.

What marketing challenges does Hughes face with the new presentation of this old offering? "I think it's effectively getting the word out that this opportunity is available again for investors because I think it's proven to be a very good fund managed by an outstanding team over a long period," he replied.

Hughes admitted that his job would have been easier if the firm had never closed the fund in the first place.

"Yes, but that's the reality of marketing a very successful micro-cap product," he said.

Firsthand's Technology Innovators Fund, which closed at $450 million, today stands at $325 million, a drop of twenty-eight percent. According to Morningstar, the fund's NAV dropped 37.9 percent in 2000.

While the firm has not faced massive defections, it operates with a very low percentage of cash, usually under one percent. Without cash reserves, the fund is hamstringed in the marketplace.

"The way that we play changing markets, if you see a stock that you absolutely have to have and you are at a low cash position, you might sell something you're not exactly enamored with to buy that," said Steven Witt, Firsthand's managing director.

Witt said the firm is hoping that investors see the same opportunities that the firm does.

"When things are down, innovators are the greatest bargains and the hardest to pick," he said. "Hopefully, those shareholders are saying, this is their highest octane fund and it's a great time to get into it."  

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