Want to launch a mutual fund? Learn from two pros

by Marilyn Dale
 

James Dailey




It’s always eye-opening to hear our peers share. It helps to put our thoughts in perspective. James Dailey, CFA, Principal and CIO, TEAM Financial Managers, Inc. and Lead Portfolio Manager, TEAM Asset Strategy, and Bill Pekin, CFA, SVP Pekin, Singer Strauss Asset Management and co-portfolio manager of Appleseed Fund, answered the following questions and provided insights about launching a mutual fund at Huntington Asset Strategies Annual Client Conference in September. Their funds, Team Asset Strategy (TEAMX) and Appleseed (APPLX), were launched on 12/21/09 and 12/08/06 respectively.

What didn’t work?

• Trade journal ads were disappointing; they are difficult if not impossible to track and can be very costly.
• Conferences – you can’t just roll into town and expect everyone to flock to yoru booth. You have to be much more aggressive, planning and executing pre and post conference campaigns.

Most challenging, then and now?

• Managing a 40 act product is challenging and filled with rules. You have to keep a vigilant eye on compliance of all kinds.
• Employees. Do you want to train your own? Have you got the patience? Should you go to a third party for everything and anything from operations, accounting, wholesaling, marketing, even portfolio management? You have to talk to a lot of people to find those that fit your culture and are right for your strategy.
• Know if you want to manage money or a business, and get the right help.
• As an entrepreneur, know your vision of success. Do you want to invest in technology, deal with larger institutions? Figure out how you can deal with your own anxiety
• Being alert to the uncertainty of the regulatory environment
• Choosing and getting onto the “right” platforms is complex; your resources and energy are limited.

Great ideas?
• Be seen: go to conferences, call advisors in those cities and take advantage of meeting with them, visit large regional cities for a concentration of advisors
• Publish and disseminate white papers; be a thought leader.
• Launch with “enough” seed money, its simply hard to make a $20 million fund economical
• If you replicate and extend what you do as an RIA, confidence, recognition and existing client base should help you grow quickly
• Look for a market niche with little competition – figure out a way to differentiate yourself. Bring in people with a book of business to help grow your core
• Get a strategy and good business plan - have confidence you can do this
• Focus on what you can control. Some things you can’t, such as the costs of doing business on platforms

And, why did you start a fund?
James Dailey: It was a long time ambition of mine to run a mutual fund or hedge product. I view it as a big business opportunity. Our RIA is relatively small, yet we have a differentiable product. We certainly took a significant business risk, but our strategy fits well in the alternative space, which is getting a lot of attention in the current environment.

Bill Pekin: I’ve observed with my kids, when they are small, they have an innocence about the world. Sometimes ignorance and innocence can be a blessing. It’s hard to grow a local ria and hard to get your story out despite being successful. But, we thought if we took a slow growing, stable annuity business like the RIA and married it to a fast growing mutual fund initiative, it would enhance our business model.

And, why problems did you solve, and for whom?
• Added transparency; a mutual fund has far more transparency than an SMA.
• We can now accept smaller accounts that we used to turn down.
• Instant credibility for the SMA/RIA business – you’re covered by Morningstar, eventually rated, perhaps engage in more media coverage. You’re out there and getting known.