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Sequoia Closes to Some Investors

Plus, fund manager of the year's firm cancels IPO, and more. 

Morningstar Fund Analysts, 01/06/2012

A window of opportunity is shutting for investors looking to buy shares of Sequoia SEQUX, one of 2011's best-performing funds. The fund's parent firm, Ruane, Cunniff & Goldfarb, announced the offering will close on Jan. 9 to new investors who purchase shares through intermediaries such as Schwab. Instead, new investors will be limited to buying shares through the fund's transfer agent. The move should cool off the fund's recent surge of asset inflows. It took in nearly $900 million in 2011, a 25% increase in assets from the start of the year, mostly from these platforms. The inflows come on the heels of the mutual dfundfund's big 13% gain in 2011, which trounced the 1% loss racked up by the average large-blend peer. Not to fret, existing shareholders will still be able to buy shares through brokerages. Interested investors, though, should take note: The last time the fund closed to new money, it was 25 years before the doors were reopened.

Artisan Scuttles IPO Plan
Artisan Partners Asset Management, home to Morningstar's Domestic-Stock Fund Manager of the Year for 2011, has canceled its plan to raise as much as $250 million through an initial public offering. The Milwaukee, Wis.-based firm, which remains in solid financial shape, blamed unfavorable market conditions for its decision.

The IPO, originally filed in April 2011, would have helped the company pay down debt. Its liabilities stem from a $400 million loan taken out in 2006 that primarily allowed founders Andrew Ziegler and his wife, Carlene Murphy Ziegler, to cash out some of their ownership stake. The outstanding loan, originally set for a five-year term, was extended in 2010 and now matures in July 2013. The halted IPO doesn't put the firm in a bind. According to an SEC filing, even after accounting for the interest it paid on the loan, the firm turned a $42.5 million profit in 2010 on $382.3 million of revenue. Cash on hand totaled $159 million. Fee income should also increase going forward because the firm has been enjoying asset inflows.

The canceled IPO is a minor setback for the highly regarded fund shop. The firm is known for being a good steward of its shareholders' capital. It tends to close its offerings at reasonable asset levels and avoids launching trendy funds. Long-term performance at most of the firm's 12 offerings has been solid. Indeed, Scott Satterwhite, James Kieffer, and George Sertl, the team behind Artisan Mid Cap Value ARTQX, Artisan Small Cap Value ARTVX, and Artisan Value ARTLX, were recently named Morningstar's 2011 Domestic-Stock Fund Manager of the Year. Their colleagues David Samra and Daniel O'Keefe, who helm Artisan International Value ARTKX, won the award in 2008.

This may not be the end of Artisan's IPO ambitions. A recent SEC filing hinted that the firm may resume its effort to sell shares to the public in the future if market conditions improve.

Curtain Closes on DoubleLine, TCW Drama
One of the mutual fund world's biggest sagas quietly came to an end recently while most investors were taking a holiday break. DoubleLine Capital and TCW Group ended their two-year-long legal battle on Dec. 29, 2011. Both firms announced they had reached a settlement, but they didn't disclose the details of the agreement.

The contentious legal battle stemmed from the dismissal in 2009 of TCW's chief investment officer, Jeffrey Gundlach, a high-profile fixed-income expert (and a former Morningstar Fund Manager of the Year). In the wake of his departure, Gundlach quickly set up his own shop, DoubleLine, and convinced several of his colleagues to join him. The lawsuits soon flew. TCW argued its former CIO had walked out with valuable trade secrets while Gundlach charged that his old employer owed him and his colleagues millions in back pay. In Sept. 2011, a jury awarded Gundlach and his staff $66.7 million in unpaid wages, but also found him and his staff in breach of their fiduciary duty to TCW.

Shareholders should applaud the end to this saga, which had become a distraction for both firms.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.
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