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Fund Spy

Seven Tidbits from Calamos' IPO Filing

A look inside the firm's business.

Earlier this week, Calamos Asset Management filed documents with the SEC indicating that it was planning an IPO. The fast-growing firm, which received much notice after performing strongly in the bear market, is majority owned by the Calamos family, including portfolio managers John Sr. and Nick. The company is best known for its strong-performing convertible bond funds and the mid-growth offering Calamos Growth (CVGRX).

The firm's filing provides some interesting insight into the workings of a mutual fund firm and, of course, Calamos in particular. Below, we extract seven notable pieces of information from the filing that we think are of use to Calamos' fundholders, too.

1. At the end of 2001, the firm had $2.2 billion in open-end fund assets, less than a quarter of total assets under management. Today, open-end fund assets exceed $22 billion and account for more than half the firm's assets.

2. Those asset gains were certainly helped by strong performance, but consider that distribution expenses went from $3.6 million in 2001 to $22.5 million in 2003. Meanwhile, marketing and sales promotion fees went from $2.2 million to $8.9 million. At the same time, fund expenses have hardly declined to adequately reflect the growth in assets. For example, Calamos Growth charged 1.50% on its A shares in 2001 when that share class had less than $650 million in assets. Now, with approximately $7 billion, it still costs investors 1.31% in annual fees.

3. The effect of this trend shows up in the firm's revenues: As assets exploded between 1999 and 2003, investment management revenues grew from $19 million to $109 million.

4. The firm received 12b-1 distribution fees, including some from certain closed funds, of $14.0 million for the year ended Dec. 31, 2003. For the six months ended June 30, 2004, that sum rose to $38.5 million, or more than one third of overall revenue.

Further, in 2003, clients paid $18.9 million in brokerage commissions. Of this amount, $1.3 million in brokerage commissions was placed with broker-dealers, which paid Calamos back with $0.9 million in research and investment information (so called soft dollars).

5. The firm's business is concentrated. All told, 31% of assets under management were concentrated in Calamos Growth, and 37% of the firm's revenues for the six months ended June 30, 2004, were attributable to that fund.

6. In its risks section, the firm says, "the requirements of being a public company may strain our resources and distract management." While we don't think this is an immediate concern, it's something shareholders should be aware of. Managing a public company can sometimes be more demanding than managing a private one, and portfolio managers John and Nick Calamos are heavily involved in the management and direction of the firm.

7. Interestingly, the firm also says "regulatory developments designed to increase the independence of mutual fund boards of directors may result in downward pressure on our fees." In effect, the point it's making is that fund boards at rival firms may become more vigilant and force down expenses because of increased regulatory scrutiny, forcing Calamos to respond in a similar manner.

What a novel concept.

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