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Former Fairholme Managers to Launch Mutual Fund

Plus, Wasatch Small Cap Growth closing, Brookfield buys Fairholme's General Growth equity stake, and more.

Morningstar Analysts, 01/24/2011

Larry Pitkowsky and Keith Trauner, former portfolio comanagers of Fairholme FAIRX, will launch a no-load mutual fund in the next few months.

The two managers recently formed GoodHaven Capital Management, LLC. Similar to Fairholme Capital Management, it will be a value-oriented, go-anywhere firm that builds focused portfolios.

While Bruce Berkowitz's firm has trimmed its separately managed accounts over the past few years, GoodHaven plans to start managing separate accounts for high-net-worth individuals, institutions, and retirement plans in February.

Pitkowsky joined Fairholme in 1999 and was a portfolio manager with the fund from 2002 until 2007. Trauner joined Fairholme in 1999 and was a manager from 2006 to 2008.

One of GoodHaven's first clients will be Tom Gayner's Markel Corporation MKL, a large property/casualty insurance company. Markel also has made a significant minority investment in GoodHaven. Fairholme owned a stake in Markel from 2000 until 2003 when Pitkowsky and Trauner were at the fund.

Wasatch Small-Cap Growth Closing
Wasatch Advisors announced late last week that it intends to close Analyst Pick Wasatch Small Cap Growth WAAEX to new investors Jan. 31.

The fund will remain open to existing shareholders and investors will still be able to purchase the fund directly from Wasatch.

In a statement, Wasatch said it likes to close funds before assets rise to a level where they would have to alter the funds' investment strategy. The fund has grown from $912 million to more than $1.4 billion in assets over the past 12 months due to approximately $216 million in inflows and strong performance. Its 28.9% return in 2010 led the average small-growth fund by 2 percentage points and beat 64% of its peers.PAGEBREAK

Invesco to Close All Small-Value Funds
Invesco announced the closing of all of its small-cap value funds as well as some mid-cap value funds that also invest in small-cap stocks.

Invesco Special Value SVFAX, Small-Mid Special Value JBJAX, US Small Cap Value MCVAX, US Small/Mid Cap Value MSMMX, and Invesco Van Kampen SmallCap Value VSCAX will close to new investors Feb. 14. As of Jan. 10, total assets in the funds were $2.76 billion.

Invesco said that as total assets in the funds have increased, it has become harder for the funds to invest in small caps without compromising their strategies.

Fairholme Sells General Growth Equity Stake to Brookfield
Brookfield Asset Management Inc. BAM has agreed to buy Fairholme's stake in U.S. shopping mall operator General Growth Properties Inc. GGP for about $1.7 billion in cash and stock. Brookfield will acquire 113.3 million General Growth shares in the deal..

That's Fairholme's entire equity stake in General Growth. The fund, however, still owns warrants to acquire common shares in General Growth.

In an interview with Morningstar, Fairholme manager Bruce Berkowitz said shareholders have gained about $1.4 billion so far on its initial General Growth investment. Some of Fairholme's debt holdings in the company returned more than 20% annualized since Fairholme's initial investment in late 2009.

Berkowitz said Fairholme now has approximately $4.5 billion in cash, or about 23% of assets for the $19.7 billion fund.

The transaction increases Brookfield's ownership of General Growth from approximately 27% to 38%. Brookfield will issue 27.5 million Class A shares valued at $907 million to Fairholme based on stock market prices and pay $804 million in cash to acquire the General Growth shares. On completion of the transaction, Fairholme will own a 4.5% equity interest in Brookfield.

Berkowitz said he was attracted to Brookfield because he thinks it is a "large and growing business that Fairholme can own for a long time."

Goldman Portfolio Manger Takes Top Post at SEC
The Securities and Exchange Commission has hired Eileen Rominger, the global chief investment officer of Goldman Sachs Asset Management GS, as its director of investment management. She takes over for departing director Andrew "Buddy" Donohue.

The division oversees the mutual fund industry and is heavily involved in the SEC's recent target-date fund disclosure and 12b-1 reform proposals.

Two of the mutual funds Rominger helped run, Goldman Sachs Growth and Income GSGRX and Large Cap Value GSLAX, have underperformed the S&P 500 over the past one-, three-, and five-year periods, though they both top the S&P over the past 10 years.

Prior to joining Goldman almost a decade ago, Rominger spent nearly two decades as a portfolio manager at Oppenheimer Capital.

SEC Issues Report on Financial Adviser Oversight
The SEC recently issued a report required by the Dodd-Frank Wall Street Reform and Consumer Protection Act on investment advisor oversight. In the report, the SEC staff recommends that Congress should tackle the issue.

Specifically, the staff recommended that Congress consider one of three approaches to strengthen the SEC investment advisor examination program. Those options included authorizing the SEC to impose user fees on SEC-registered investment advisors to fund their examinations, authorizing a self-regulatory organization (like FINRA) to examine, subject to SEC oversight, all SEC-registered investment advisors, or authorize FINRA to examine dual registrants for compliance with the law.

Etc.
Some of Joel Greenblatt's 'magic formula' funds are now open to new investors. Formula Investing US Value Select FNSAX and Formula Investing International Value Select FNAAX each invest in 75-120 stocks. Formula Investing US Value 1000 FVVAX and Formula Investing International Value 400 FNVAX are more diversified. The funds are currently available through Schwab SCHW, E-Trade ETFC, and Scottrade.

Barclays will pay a record $12 million fine and up to $94 million in compensation to United Kingdom investors for failing to provide adequate investment advice to thousands of customers who invested in two of its fixed-income funds.

The board of directors of Bridgeway Omni Small-Cap Value approved changing the fund's name to Bridgeway Omni Tax-Managed Small-Cap Value, on Jan. 18, 2011.

The board of trustees of Forward International Fixed Income FFXIX approved a new subadvisory agreement with SW Asset Management, replacing Pictet Asset Management. The change will take place Feb. 14, 2011.

John Richardson, Julie Hollinshead, and Robert Crosby are no longer managers of Munder Micro-Cap Equity MMEAX. Daniel Bandi, Daniel DeMonica, and Adam Friedman will assume portfolio management responsibilities.

Principal Global Investors is no longer a subadvisor for SEI Institutional World Equity Ex-US WEUSX or SEI Institutional Screen World Equity Ex-US SSEAX.

The board of trustees has agreed to close Driehaus Active Income LCMAX to new investors on Feb. 28, 2011.

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