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'Closed' Funds Reopen To Investors

The storm that hit Wall Street since mid-1998 has blown open the doors of several closed mutual funds.

In recent days a variety of funds such as the Longleaf Partners Fund, Third Avenue Value Fund, Merger Fund and John Hancock Regional Bank Fund have announced that they are reopening to new investors.

Managing Your Money
They had been closed to all except existing shareholders for periods ranging from a few months to several years, generally because their managers concluded there weren't enough good places to put money to work as it kept flowing in from investors.

Now, after a sharp sell-off in the stock market, the people running those funds see things differently.

At the $1.5 billion Third Avenue Value Fund, which closed to new investors July 15 but reopened Oct. 15, Chairman Martin Whitman said, "In the last few months, market conditions have presented numerous investment opportunities which suit our value approach. Many of the companies in which we are interested from a quality perspective now have very attractive pricing."

Similarly, James Schmidt, leader of the team that manages the Hancock Regional Bank fund, asserted, "Regional bank stocks have underperformed the market this year and have reached a point where they represent unusually good value.

"The decline in regional bank prices is ironic, because these banks are among the industries with the least direct exposure to investments in the problem emerging-market economies investments that are currently hampering some of the large money-center banks."

After a spell in which almost everybody worried that stocks were overvalued, it may come as encouraging news to hear money-management professionals talking about good values in the marketplace again.

Investors who had been shut out of a fund or funds where they wanted to begin investing can be happy to see some of these funds becoming available once again.

But existing shareholders may have mixed feelings when a fund reopens. Like any group of people that has found a nice neighborhood to live in, they may prefer not to be followed by a continuing influx of newcomers.

That misgiving often applies especially to funds that specialize in small stocks or in undiscovered "value" stocks, where the supply of good investments is presumably quite limited.

If a small-stock fund attracts too much money, some observers start to worry that it will be forced to begin buying bigger stocks, or else stretch its idea of a good small stock to companies it might have rejected in its earlier days.

Similarly, value fund managers may be tempted consciously o unconsciously to relax their demanding standards to accommodate their funds to a growing pot of assets, and the concomitant increase in management fees they stand to receive.

When the $3 billion Longleaf Partners Fund reopened Oct. 16 after being closed to new investors for more than three years, co-manager Mason Hawkins made the case this way:

"We closed because accepting additional cash flows from new shareholders would have diluted our investment holdings and penalized our investment partners (existing shareholders). We were having great difficulty finding qualifying investments in late summer of 1995, and the prospects for buying undervalued businesses appeared remote.

"The reverse is true today. The Partners Fund is fully invested, and accepting additional assets will provide the opportunity to improve future returns."

In the fund's latest quarterly report, Hawkins and co-manager Staley Cates say, "The investment world for the Partners Fund changed dramatically in three short months.

"Just 90 days ago equity bargains were elusive, the fund had 15 percent cash, and greed was riving up an already overvalued market. Today we have many compelling investment ideas, the fund is fully invested, and palpable fear has caused U.S. stocks to fall precipitously from their highs.

"We have recently increased our personal stake in the Partners Fund to seize this rare and tremendous opportunity."

Written By Chet Currier, AP Business Writer

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