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Thursday, January 31, 2013|
Berkowitz Partially Closes Everything
A star PM and mutual fund chief is shutting new investors out of his entire mutual fund business in a month. Yesterday Bruce Berkowitz' Miami-based Fairholme Funds [profile] revealed that after the market closes on February 28, the three Fairholme mutual funds will no longer sell shares to new investors.
Barron's, Bloomberg Businessweek, InvestmentNews, Morningstar and Seeking Alpha all covered Berkowitz' move.
Berkowitz and his team offer three mutual funds: the famous, two-star, silver-rated, $7.5-billion, 13-year-old Fairholme Fund (for which Berkwotiz won domestic equity PM of the year in 2009 and domestic equity manager of the decade); the $269.1-million, two-year-old Fairholme Allocation Fund; and the bronze-rated, $240.7-million, three-year-old Fairholme Focused Income Fund. Existing shareholders will still be able to invest further in the funds.
Fairholme offered two explanations for the closing:
The decisions were based on beliefs that (i) inflows from new investors into a Fund may dilute the proportionate interests of existing Fund shareholders in the Fundís current portfolio holdings and (ii) each Fund is well positioned to fund current operations and make new investments.The move comes after several volatile years for the concentrated deep-value manager, with chart-topping performance in 2012 and big losses in 2008 and 2011, along with $8.5 billion in net outflows over the past two years. M* notes that, while many mutual fund closings are driven by big inflows, Berkowitz feels "burned by the massive outflows of the past two year. He says he would now rather have a smaller, core group of long-term shareholders who have a thorough understanding of his deep-value process and are less likely to bolt during periodic bouts of underperformance."
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