MACSX and Andrew Foster (Seafarer)

claimui

I was reading the February commentary (great job David, as always) and have been looking at Seafarer since it was first mentioned several months back. I have invested in Matthews funds but currently don't have anything in the diversified EM space, so Seafarer is an interesting option from the manager of a successful Asia fund. But my question is, how much of MACSX's success should I attribute to its former manager? For those of you who hold MACSX, do you still think it is a great fund, or is it less attractive now that Andrew Foster has moved on? Are people interested in Seafarer because Andrew Foster has a unique investment strategy, or because Seafarer will use the same strategy as MACSX (which is just as good with or without Andrew Foster)?

AndyJ

As I understand it (from M* "Management" pages), Andrew F. was lead manager for just shy of two years at Macsx, after having been second in command to Paul Matthews for about four years. However, he was also lead manager at Mapix for more than four years.

I really, really like the idea of a total-EM Macsx, but:

* Like you, I'm not sure how much of Macsx's success was Foster's. The fact that he ran Mapix so well puts some chips on his side of the table, though.

* He spent years on Asia, getting prepped by the best (P. Matthews) for his solo run, and while that seems to have worked out well, I don't have a clear indication yet that he'll be a top dog in the diversified EM space.

* I'm still mildly curious about the context of his leaving Matthews. Simply "pursuing other opportunities" might be the whole story, or it might not - even if perfectly true, there's likely a context that would be interesting to know about.

*It's danged expensive. There's a cef, FEO, from the long-successful people at Aberdeen, that has a proven track record using a "balanced" EM strategy and costs the same as the investor shares of the Foster fund will. So, I'm not totally sure that Seafarer as a brand new entity is worthier of new $ at this point than FEO.

My usual self-discipline is to wait till at least the first comprehensive report with detailed commentary and full holdings info before investing in a new fund. To cut to the chase, I don't see any reason yet to skip that step here. However, I'm very much looking forward to David's writeup of his interview with Andrew.

David_Snowball

Good questions.

Andrew helped manage MACSX for eight years: two as an assistant manager, four as a co-manager with Paul Matthews, and two as the sole manager. That underestimates, I think, his role in the fund's management since his role steadily grew as Mr. Matthews wound down over a period of years. As far as I understand the Matthews system, he was Jesper Madsen's "business continuity plan" at MAPIX. That is, he was the answer to the question, "what it Jesper gets hit by a bus?" As such, he was not handling the fund's day-to-day operations.

Seafarer is not an emerging markets fund, so the comparison to FEO is not quite apt (though, as you know, I do rather like the fund). Andrew expects his investments to range from developed to frontier markets.

As I've noted, he is torn on the expense front between the "fair to shareholders" piece (about which he's passionate) and the "avoid personal bankruptcy" piece (ditto).

As to leaving Matthews, I'm not sure how much one should say beyond "there appeared to be legitimate disagreements between them."

For what it's worth, I'll ask Andrew to look at your concerns before our discussion in February.

As ever,

David

Kenster1_GlobalValue

Yup - and prior to starting to assist in managing MACSX, he started as an Investment Analyst at Matthews Asia in 1998. He was also the founder and lead co-manager of MAPIX when it started in 2006.

Hi David --- some things I'd like to know when you get the chance to interview him....

- How does he compare the investing opportunities between Asia and Latin America at this time based on his investing style?

- Tell us more about his investment team? He will be lead manager but will there be a co-manager? If not, then an Assistant Manager? How about the Analysts - tell us more about them? Does he plan to add another analyst or two this year to beef up his team?

- Will he and his analyst team do a lot of traveling to visit companies?

- What does he see as potentially the top 3 countries in the fund if he were investing & managing the Seafarer fund right now? As an example - Indonesia looks great but what are his thoughts on this country? How would he rate it? Would he be lightly invested in Indonesia because he feels it might be too growthy at this time?

David_Snowball

Reply to @Kenster1_GlobalValue: I've passed this thread (and the related one on the 2/15 launch) along to Mr. Foster, and asked if we might talk about your questions when we chat later this month. We'll see what he's thinking.

For what interest it holds,

David

AndyJ

Reply to @David_Snowball: Thanks, David. Just to be clear, I doubt there's much to be learned from probing about his leaving Matthews; both parties are rightly being politely mum about details, as pretty much anybody would do in the same situation. I mentioned it only as a Rumsfeldian 'known-unknown' that tilts (for me, anyway) in the direction of caution until Seafarer has at least a bit of a record.

[Deleted User]

The user and all related content has been deleted.

David_Snowball

Reply to @Maurice: I profiled Matthews Asia Strategic Income this month. I'm scheduled to talk with Teresa Kong, the lead manager, later in February - our scheduled just haven't meshed yet - about the comparison of Asian to "developed" fixed-income markets and the effect of equities and convertibles on the portfolio. I'll update the profile for March, based on what I learn.

As to the first question, I guess the answer would be "because I want to take the strategy beyond Asia."

As ever,

David

00BY

i think managers underestimate how much damage they do to individual investors when they go off and start their own MF. If he can't explain himself, then I have to assume he's doing it for selfish reasons. So, why would I trust him with my money. Hubris has hurt many a fund manager. For the record, I own MACSX. I like Foster and would consider his fund, but without an explanation, I have no motivation to leave Matthews. Maybe after I see his record for a few years.

Kenster1_GlobalValue

Reply to @00BY: So after IVA debuted their funds - what were your thoughts on these guys who jumped the First Eagle ship? For the first couple of years I didn't know what happened as they were tight lipped about it.

How about Eric Cinnamond?

claimui

Reply to @00BY: I think that is jumping to a lot of assumptions. Foster wasn't the only person on the MACSX management team. It is entirely possible that Foster left because he believed MACSX was in good hands and that he could better serve investors by providing the same strategy but with greater international coverage.

andrei

Reply to @Kenster1_GlobalValue:

Can you tell us what did you learn after the first couple of years? I cannot find any info about the reasons why they left the First Eagle. I am trying to find out which of the two (IVA or the First Eagle) is the best way to go.

Thanks in advance

Andrei

00BY

I agree with you. It is entirely possible. But if that were the truth it would be very easy to for him to say. And it would give investors much more comfort.

00BY

Reply to @Kenster1_GlobalValue: The difference with both of those cases is that they basically took their exact same strategy and left. I did feel similarly though in those cases. I struggle with these with each manager change. I never owned first eagle b/c I didn't like the load and was comfortable with other positions that I had. I actually own IVWIX, but didn't purchase it until last year. So, I watched them for a few years first. If I had owned first eagle, I don't think I would have left. They still have other capable managers using that strategy. Cinnamond, is the exception for me, because I did purchase ARIVX as soon as it became available. I didn't own his old fund though (Intrepid Small Cap), which makes it easier to go with the new one. I felt like his style/strategy was more of a one man band. And getting in early allows me to take advantage of his best ideas. To throw another one in the mix, I've never owned Chuck Aker's old fund (FBRVX) or new fund (AKREX). I do like him and have always been interested. But never felt strongly enough that his fund fit into my portfolio well to pull the trigger.

So in summary, I never like to see a "star" manager split off. I wish they would be able to work things out with the fund company. I think it often comes down to control. The star manager wants to have a little more leeway than the corporate policy allows or wants to do things a little bit different. I just wish there was more transparency in these sort of things.

fundalarm

@By -- it's almost exclusively about pay. if you're a star, and your name is enough to attract assets, why would you want to share the management fee with others when you can have your own shop. Really. Very. Simple. Answer.

00BY

Reply to @fundalarm: Thanks, that makes sense. It's just frustrating for a small investor to be changing funds all the time. In Foster's case, he left and it was a year before his fund is up and running.

fundalarm

Reply to @00BY: it is normal. they always leave with a 'non-compete' clause which is usually effective for a year. Gundlach's exit was an exception, but he didn't mind to go to courts.

Kenster1_GlobalValue

Reply to @andrei:

re: First Eagle and IVA

This may not be the entire reason why but Charles/IVA (last year I think it was) made reference in a sort of grumbled way about how the First Eagle funds were large and growing and it wouldn't close. First Eagle Global + Overseas fund now have like $40B in assets and there is an overlap in stocks between the two. First Eagle Global has $32B in assets.

But noticed that IVA had closed their Global fund to new investors around the $10B mark. (And they also closed their International fund too at an even smaller asset base).

So there was mention by Charles/IVA of that separation or difference between First Eagle and IVA. So that clues me in to thinking that Charles & team while at First Eagle had a significant disagreement with the First Eagle/Arnhold and S. Bleichröder Executives on that very issue. Remember, Charles left abruptly and I would think that he was pissed and vehemently disagreed with upper Execs.

And lo and behold when IVA reached their comfortable investing capacity (with room to grow) they indeed closed it to new investors - and as owners of IVA, they have control over those decisions. And to reiterate - Charles pointed out that difference between First Eagle and IVA.

andrei

Reply to @Kenster1_GlobalValue:

Most interesting! Here is what I found:

http://www.marketwatch.com/story/fund-manager-eveillard-returns-to-first-eagle-de-vaulx-out

They mention:

"The biggest fund, First Eagle Global, has continued to outperform its peers, both in the short-term and long-term. First Eagle Overseas, though, has lagged. In the past three years through Friday, it trailed three-fourths of its rivals in the foreign small-mid value category. With $11.5 billion under management, the fund was its firm's second-biggest portfolio."

Thus the Overseas was huge; meanwhile IVA INTERNATIONAL has only $2 billion. So you may be right; this could be an explanation.