Baer launching new fund

NEW YORK – Julius Baer’s all-cap international equity fund has been wildly successful over the past few years – so much so, the company has shuttered it to new investors. But new customers can get access to its winning management team through another soon-to-be launched fund.

The swelling asset levels of the company’s original international fund (BJBIX) made it challenging for co-managers Richard Pell and Rudolph-Riad Younes to make further investments in small caps, which currently make up some 18 percent of the portfolio. With total fund assets climbing to more than $12.2 billion and another $10 billion in separate accounts run on the same strategy, the company decided to close the portfolio May 4.

“We’ve been finding it difficult to buy significant positions in smaller names. But we still feel comfortable buying large-cap and mid-cap names,” Younes said. “So the new portfolio will be limited in focus on the large and mid-cap names, but from a thematic, geographic, sector and fundamental research perspective, it should be very similar.”

Pell and Younes, who have been running their fund since 1995, share one of the best long-term records in the foreign large-blend category, said Gregg Wolper, senior fund analyst at Morningstar Inc. One factor that’s given them an edge over the years has been their ability to discover smaller firms in emerging markets, especially central and eastern Europe. In some countries, even the biggest, most successful companies are small on a global scale, however. Over time, a large asset base will dilute the positive impact of such investments.

That won’t be a problem for Julius Baer International Equity II, which will limit itself to companies with total market caps of $2.5 billion or more. No ticker symbol has been set yet for the new fund, and Wolper said it was too soon to know how well the strategy will translate. One thing it has going for it is that it’s not a direct clone.

“It’s not that common for a fund to close and then come out with a very similar fund with the same managers,” Wolper said. “It’s something that can be workable but also deserves to be looked at cautiously. In general, you want to make sure the new fund is different enough, that it won’t face the same hurdles as the old fund. In this case, there are differences, so it might work out.”

Funds that invest in smaller stocks and are successful often wind up facing what on the surface might seem an enviable problem: they pull in too much money.

“If you have $1, it’s easy to make it $2. But if you have $1 billion, it’s hard to make it $2 billion,” Younes said. “All things being equal, if you’re using the same style, the less money you have, the more you are able to add value on average.”

Companies may deal with overly large asset levels in several ways, starting with the sort of “soft close” Julius Baer employed – shuttering the fund to new customers but remaining open to existing clients, including those with access through 401(k) plans. Sometimes, however, so much money keeps flowing in, a fund will do a “hard close,” accepting no new money.

A third alternative is to raise the minimum investment while keeping the fund open. For example, a company might attempt to slow the amount of fresh inflows by raising the minimum investment from $3,000 to $25,000. This keeps the door open for larger individual investors or advisers who can pool money.