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Rating:Ruane Says Email Routing List Email & Route  Print Print
Friday, January 06, 2012

Ruane Says "We Don't Want You" to Supermarkets

News summary by MFWire's editors

There is something out of the ordinary going on at the Sequoia Fund Inc.. Ruane Cunniff & Goldfarb Inc. [profile], the sponsor of the $4.9 billion mutual fund, is closing the doors to new investors, but not really.

The firm explained in a 497 filing with the SEC that the fund will be closed "to new investors seeking to purchase Fund shares indirectly through financial intermediaries and other financial organizations."

However, it will remain open to "new investors seeking to purchase shares directly from the Fund through its transfer agent and to existing shareholders..."

So, after January 9 any new investor to the fund will be able to get in to Sequoia by contacting DST Systems, the fund's transfer agent.

"We are just being inundated by cash," Ruane CEO and Chairman Robert Goldfarb explained to Bloomberg. "If we were going to curtail inflows, we had to go to the source."

The fund has been closed to new investors for much of its history. Indeed, its shares were off the market from 1982 until 2008, when it reopened. The spigot of new money may also have opened wider than anticipated when the fund's PMs won Morningstar's 2010 Domestic-Equity Manager of the Year award.

Intended or not, the effect of how Ruane is closing the fund is an interesting one. By forcing new shareholders to come directly to their door, Ruane will know all of their shareholders. That is something that most mutual fund sponsors are missing out on by relying on B-Ds and fund supermarkets for their distribution.

Goldfarb told Bloomberg that his "preference would have been to keep the fund open" but they are trying "to be careful and disciplined in putting cash to work." He added that the fund gets $20 million of net deposits per day through financial intermediaries such as Schwab.

According to filings, by the end of 2011's third quarter, the fund's cash balances went up to more than $920 million, or 22 percent of the $4.1 billion net assets of Sequoia that time. The fund held just $3.3 billion of AUM when it reopened in May 2008 and cash and short-term securities made up just about 8 percent of its assets at that time. 

Edited by: HFD

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