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Thursday, August 13, 2020

An East-to-West, Two-Fund Adoption

Reported by Lauren Corradi, Editorial Intern

A California asset manager with $24 billion in AUM is adopting an 18-year-old mutual fund family from a fellow employee-owned, value-focused fund firm. Meanwhile, a 10-year veteran of the adopter is moving on.

Steven "Steve" H. Scruggs
Bragg Financial Advisors, Inc.
PM, Principal
Charlotte, North Carolina-based Bragg Financial Advisors, advisor to the Queens Road Funds, is partnering with Los Angeles-based FPA (First Pacific Advisors). Under the new partnership, FPA will take over the two Queens Road Funds and related institutional separate accounts, handling administration and marketing and distribution, while keeping Bragg on as a subadvisor.

"This will allow us to maintain ownership, but let us partner in a strategic way that helps us take advantage of a lot of their capabilities that we donít have," Bragg PM Steve Scruggs tells MFWire. "[FPA has] a great track record with their product; they have size and scope and a distribution team that can really present these options to a broader group of potential investors than we were able to do with our limited resources."

"The jist of it is we will manage the funds as we always have, FPA will handle distribution and administration and it will be on their platform," Scruggs continues. "We have known some of the folks there for over a decade and we have seen how they run their business and how they invest, and we have just always had a lot of respect for them."

Pending shareholder, regulatory, and fund board approval, the Queens Road Small Cap Value Fund and FPA Capital Fund will merge to form the new FPA Queens Road Small Cap Value Fund, with Scruggs as the combined fund's PM. Scruggs has PMed the Queens Road Small Cap Value Fund since 2004. Meanwhile, the FPA Capital Fund's PM, FPA partner Arik Ahitov, has left the company.

Bragg's other mutual fund, the Queens Road Value Fund (a large cap value fund), will transform into the FPA Queens Road Value Fund.

"We are fortunate to partner with such a like-minded firm with a long history of investing success. Steve Scruggs and his team have added significant value for their shareholders for more than 18 years and we have every expectation that will continue," stated Steven Romick, managing partner at FPA.

Scruggs tells MFwire that the Bragg team has been approached in the past to sell to various corporate entities.

"We never had extensive discussions because we are a family owned privately held business, just like FPA," Scruggs says.

"Our firm has been around since the mid 60s and it has evolved over the years. We are a family business; it was started by my father-in-law," Scruggs tells MFwire. He explained that the wealth management side of the business kicked off in the 90s.

"In 2002, we decided we would use that to make two mutual funds to manage assets," Scruggs continues. "... When we started in 2002, we had no experience in marketing mutual funds on a nationwide basis."

One advantage of the partnership with FPA is "they will create multiple share classes which we couldn't do under our current structure," Scruggs explains.

Indeed, the FPA team plans to offer a class of shares with lower pricing for both of the transforming funds. In fact, the agreement proposed offering the FPA Queens Road Small Cap Value Fund institutional share class at 89 basis points, compared with 118 bps for the current share class, while the FPA Queens Road Value Fund institutional share class will be offered at 65 bps compared with 95 bps for the current share class.

Ahitov joined FPA in 2010. Prior to that he worked with Shamrock Capital Advisors. He is an alumnus of UCLA's Anderson School of Management and of Northwestern University.

Bragg dates back to 1964, and the family firm entered the mutual fund business in 2002. As of June 30, 2020, the firm managed more than $1.8 billion in assets.

FPA, which traces its roots back to 1953 and has been independent and employee-owned since 2006, managed about $24 billion in assets as of June 30, 2020. 

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