Monday, January 7, 2008

Reader 'Pledges' Towards Mutual Fund Launch

Readers, first of all thanks for your 'business' and participation on the blog. As I like to say, I realize there are many financial focused web site choices out there for your time and interest, so I feel very pleased that this blog has grown so quickly in just 5 months from a dead start to a very healthy number.


There is an end goal to this site - and that is to launch a real mutual fund. Over the years I have helped many people with their work 401ks and part of my motivation, aside from passion for investing, is just being sickened by seeing so many "me too" mutual funds out there, full of large cap stocks of identical mix over and over in fund after fund - full of stocks like GE, Microsoft, Exxon, Citigroup, Bank of America, Merck, Pfizer - all charging 1.0%+ annual fees on billions of assets to get investors nothing more than a S&P 500 index fund could do for far less in fees and almost always better performance. That's the dirty secret; the vast majority of funds cannot even beat the S&P 500. That's essentially "much" of the mutual fund system; a system of under achievers. Now, one day I might prove to be an under achiever as well, but you will see it day by day, week by week, each decision and thought process and I think this could be a unique concept, especially for this staid industry. An industry where performance does not mean much; only marketing. Obviously I need to perform - or I don't win readers trust. So far so good as readers who have been following along can see.

As the title bar indicates I have a goal of raising $7 million (note this amount might fall as I gather more information and talk to more people who have started small funds). If its from 2000 people, 500 people, or 6000 people is abstract - the amount is important. Why $7 million? Essentially, mutual funds are expensive things to maintain on an annual basis due to audits, SEC documenation, system support, paperwork and the like. From the firm I am working with something in the range of $100K- $125K should be expected (depending on how many states you are registered in) on an annual basis so to break even with some leeway, a $7 million asset base with a 1.75% annual expense fee would generate $100K-$125K a year and should allow me to at least break even. So I need to have 'committments' for investment near this area to have confidence the fund can exist at break even levels, hence why $7 million is the initial goal.

Of course it goes without saying this would be a NO LOAD mutual fund (i.e. some mutual funds charge a fee under the fancy term 'load' i.e. if there is a 6% load you send $10,000 to the fund and they take $600 away to their pocket for the honor of investing in their fund. So you start 6% down and have only $9,400 to invest. Nonsense.)

Aside from that there is about (approx) $50K in startup fees/registrations just to launch the fund in the first place. So it is not a cheap production, and in fact running a hedge fund (both in start up and in annual maintenance) is far cheaper. But you limit the people who can invest in your fund to people of high net worth (certain annual income requirements and household worth). Perhaps that will be a future adventure.

EDIT: One question asked is the process once the fund is up and running - it would be no different than any other mutual fund out there - you'd get an application, prospectus, send the check to a 3rd party clearing house and away you go. Retirement and normal accounts both available, etc - nothing different than all the other mutual funds out there, other than the most transparency in terms of manager decisions and daily feedback. So that's down the road once the fund is created - for now I just need a clear amount of commitments/pledges so I can hit the ground running.

Since many readers have contacted me with early interest I've decided use this blog post and readers can "respond" with comments (or email me directly) and we will use that as a "pledge meter" if you will.

Again, my timetable is open ended, my original goal was to build a track record of 3 years, surpassing the indexes I track by 15% a year. As I write this, we are only near the end of quarter 2 of a 12 quarter marathon but if things progress quicker than that, it would be wonderful as well. I would ask if the readers who are interested please add a comment to this post (or email me) with the following information in this format:

Amount 'pledging', First name, Last initial (for privacy sake), City, State

For example:
$5000, George B., Washington D.C.

Please keep in mind $2500 is the minimum (record keeping for accounts smaller than that becomes onerous and expensive) and both IRA and regular accounts will be offered, as with any mutual fund offering. Essentially any type of account you use to open a mutual fund or brokerage account will be available.

New NEWS: Foreign Investors are now eligible. You will need to fund your investment with a bank wire (easier) or if you have access to a US dollar check account you can do that too. And you will need to fill out this form when you invest - it creates a US tax number for you. IRS W-8. Everything else will be the same as any normal investor.


And yes, I will be investing my own money (another thing all mutual fund managers should be required to do)... So let me get this rolling...

$75K, Mark H, Royal Oak, Michigan

Now I only need $6.925M more :)


Last, if you are making a larger pledge say $20K or more, in addition to adding a comment to this the bottom of this message, please send me an email so I have your email address (and place the same data in the email as you put in the comment). Obviously 1 large pledge takes the place of many smaller ones, and gets to the ultimate goal much quicker so I'd like to have that group ready and on hand, and easy to communicate with so when ready to begin the next steps I can confirm they are still committed. But even the smallest pledge is of course appreciated; and those of you who just are here for sake of reading the blog with no intent of investing are always welcome.

So we'll check over the course of the next 12 months and see how we progress... hopefully we find an easier way to track things down the road! I'll track progress monthly. (p.s. if you prefer to just email me with amount and info, please do)

January 7, 2008
= $75K total raised
February 19, 2008 (click here for full post): $766K total raised
March 18, 2008 (click here for full post): $994K raised
April 16, 2008 (click here for full post): $1.2M raised
May 15, 2008 (click here for full post): $1.6M raised
June 17, 2008 (click here for full post): $2.5M raised
July 17, 2008 (click here for full post): $3.3M raised
August 18, 2008 (click here for full post): $3.9M raised
Mid September ....

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