Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Fairholme Funds suspends/ceases selling shares in its funds to new investors.

edited January 2013 in Fund Discussions
http://www.sec.gov/Archives/edgar/data/1096344/000091957413000409/d1350636_497.htm

497 1 d1350636_497.htm
FAIRHOLME FUNDS, INC.


The Fairholme Fund
The Fairholme Focused Income Fund
The Fairholme Allocation Fund


Supplement dated January 29, 2013
to the Prospectus dated March 29, 2012


The Fairholme Fund
The Fairholme Focused Income Fund
The Fairholme Allocation Fund


The following is added as the first paragraph under "Purchase and Sale of The Fairholme Fund Shares", "Purchase and Sale of The Income Fund Shares" and "Purchase and Sale of The Allocation Fund Shares" in the summary sections of the Prospectus for The Fairholme Fund, The Income Fund and The Allocation Fund, respectively:

The Board of Directors has authorized the Manager, in its discretion, to determine that, at any time, shares of the Fund will no longer be offered and sold (including in connection with reinvestment of Fund distributions) to any or all investors, including existing shareholders. The Manager has determined, pursuant to this authority, to suspend the sale of shares of the Fund to new investors, effective as of the close of business on February 28, 2013.

Effective as of the close of business on February 28, 2013, the Fund will suspend the sale of shares to new investors, including new investors seeking to purchase Fund shares directly from the Fund or indirectly through financial intermediaries. Subject to the rights of the Fund to reject any order to purchase shares or to withdraw the offering of shares at any time, shares will remain available for purchase to existing shareholders.

The following is added directly under the title of the section "BUYING AND SELLING SHARES OF THE FUNDS; INVESTING IN THE FUNDS" in the Prospectus:

Effective as of the close of business on February 28, 2013, the Funds will suspend the sale of shares to new investors, including new investors seeking to purchase Fund shares directly from the Funds or indirectly through financial intermediaries. Shares of the Funds will remain available for purchase to existing Fund shareholders. Each Fund retains the right to make exceptions to the suspension of the sale of its shares to new investors, and reserves the right to subsequently commence selling its shares to new investors. Investors may request information by calling Shareholder Services at 1-866-202-2263.


* * *


YOU SHOULD RETAIN THIS SUPPLEMENT WITH YOUR PROSPECTUS
FOR FUTURE REFERENCE.

Comments

  • The user and all related content has been deleted.
  • Reply to @Maurice: And I think a downdraft is heading our way...
  • edited January 2013
    I am surprised about FAAFX and FOCIX. Both "only" have a couple hundred million in AUM.
  • Reply to @Maurice: OR - he's a little short of free cash now to pile into his next great idea and he wants folks to storm the fort before the end of February.

    I'm always dubious about these fund closings that are announced with substantial lead times. I say if you're going to close the fund supposedly to protect existing shareholders then just close it.
  • edited January 2013
    Hi David, perhaps you could make a call and get Fairholme's perspective?
  • I thought closing the fund(s) was what all the Fairholmers wanted. It won't stop people from leaving if things head South again, though.
  • edited January 2013
    Good point Scott. Just want to better understand why, especially for the relatively small FAAFX and FOCIX. No news on its web site. I do see Fairholme as more pure investment house than fund maker. Shadow is amazing alerting us to such things. Wonder if we're seeing influence of Fred Fraenkel, who was just appointed as Fairhomle President. As for Mark's point, I've thought that too...but, it seems to be industry practice to forecast the closing. Trust it is more of practical matter than marketing ploy. I for one appreciate the heads-up, but admit it has influenced me when I am on the fence with a fund.
  • Reply to @scott: Speaking for this long time shareholder I do want them closed. I'd also like to see Berkowitz step out of the media headlights and just stick to managing the funds.

    The trouble is I don't know if at present he has a stable base of dedicated shareholders or a pile of hangar-ons hoping to get back what they lost in the big crush.
  • edited January 2013
    Reply to @Mark: It's no different with any manager. Paulson made the biggest trade in history shorting subprime. He has a couple of lousy years after and everyone runs for the hills. People can believe in Berkowitz, Paulson, etc - but if performance goes sour, a lot of money is going to be impatient no matter who the manager is. I'll say this: I don't believe there is such a thing as a "stable base of dedicated shareholders." Totally don't believe there is such a thing. A lousy year and much of the money will flee. Heck, these days, people get impatient after a lousy 6 months.
  • I sold my position in Fairholme fund last year due to the media Berkowitz's involement with St. Joe's as he seemed more interest in St. Joe's rather than managing the money I invested with him.
  • edited January 2013
    Reply to @Charles:

    Thanks. Everyone's contribution to this Board makes it interesting to existing and new posters!
  • edited January 2013
    Every once in a while, Bruce does some weird stuff. First, there was fund bloat extraordinaire all while Bruce rationalized his pre-2008 media overexposure as "an efficient way to communicate with shareholders". Then, there was Bruce's stupendously fraudulent business partner who ran off Fairholme's crack analytic staff. And let's not forget early FAIRX letters where Bruce solicited ideas from investors. Now Bruce is will to suspend the reinvestment of cap gains and income distributions for existing shareholders?

    Makes a shareholder wonder...
  • Reply to @Shostakovich: "now he's will to suspend the reinvestment of cap gains and income distributions for existing shareholders."

    I didn't even notice that.
  • Reply to @scott: Didn't notice my typo ?:-)
  • edited January 2013
    Reply to @Shostakovich: Sorry Shosta, I'm too slow...you are being facetious, aren't you? I could not find your reference to suspending "reinvestment of cap gains and income distributions for existing shareholders" anywhere.
  • Reply to @Charles: search for "....including in connection with reinvestment of Fund distributions..."
  • edited January 2013
    Reply to @Shostakovich: Here is the paragraph from the prospectus:
    The Board of Directors has authorized the Manager, in its discretion, to determine that, at any time, shares of the Fund will no longer be offered and sold (including in connection with reinvestment of Fund distributions) to any or all investors, including existing shareholders. The Manager has determined, pursuant to this authority, to suspend the sale of shares of the Fund to new investors, effective as of the close of business on February 28, 2013.
    I believe this says the Fairholme fund manager can stop reinvestment, but unless I am reading wrong, that is not the case with this announcement of stopping sales of shares to new investors. A good thing, as I own FAAFX and will probably open a few shares of FAIRX (again) and FOCIX for future consideration in my portfolio. There are few money managers today as good as Bruce Berkowitz.
  • Reply to @Charles:

    Charles, yes, I see that. I was surprised that after the tremendous bloat at FAIRX not so long ago, that Bruce would decide that he would now want the flexibility to go so far as to suspend all purchases, even reinvested divvies, etc. I did not mean to imply that Bruce is taking advantage of this flexibility now. Apologies.
  • edited January 2013
    From Morningstar: "Nevertheless, this move is not a surprise. Manager Bruce Berkowitz has alluded to this possibility a number of times over the past 18 months, feeling burned by the massive outflows of the past two years. He says he would now rather have a smaller, core group of long-term shareholders who have a thorough understanding of his deep-value process and are less likely to bolt during periodic bouts of underperformance."

    http://news.morningstar.com/articlenet/article.aspx?id=582938

    He's comp-lete-ly wrong if he thinks people won't bolt again.

    The idea that he'll manage to find a shareholder base where the majority of his audience will stay loyal if he has another down year is ridiculous and makes me think there may be a considerable ego at work.

    Throughout history, there have been many great managers who are stunned, just stunned (wasn't it an issue with Marty Whitman a couple of years back?) when shareholders flee if things turn South. The AUM under Cramer's former #1 mutual fund CGM Focus are now a fraction of what they were. Paulson, etc - there are tons of examples.

    The only way that mutual fund managers like Berkowitz are going to find a loyal audience that won't flee is if they ever crate "enhanced" mutual funds that are kind of a bridge product between mutual funds and hedge funds, and require similar lock-up periods - and that's highly unlikely to ever happen (and would only delay fleeing if a fund went South.)

    If this is an instance of Berkowitz not finding anything to invest in, okay, but the fact that this was even partly an attempt to find a "more loyal base of shareholders" is silly.

    Additionally, interesting mix of comments in the comments section of the M* article.
  • edited January 2013
    Man, you're right about the mix of comments. Reminds me of line in Patton at the end of the movie: "A slave stood behind the conqueror holding a golden crown and whispering in his ear a warning: that all glory is fleeting."
  • Seems like moving to a closed-ended format would be a more straightforward way to create a permanent capital base and not have to worry about investors pulling money at inopportune times. Bill Ackman is moving in this direction.
  • Reply to @scott: I think Royce Heritage Fund used to have such a lock up period (couple of years?). The fund seemed to have done quite well back in the day. Royce abandoned the format, however. And now Heritage is just another of Royce's "SMid-cap" "mix and match" funds.

    In principle, I like the idea of a lock-up period.

    I"m a FAIRX holder; my position is fairly small, I have no idea what I'd do if I wasn't allowed to reinvest, say, my < $100 in cap gains.

    I'm starting to think Bruce is a bit of a nut. I think of the folks at Artio in some ways too: pretty decent fund managers, who were less-decent fund company managers. When you read the stories about Fernandez, you'd wonder how Bruce could have ever been taken in hook, line, and sinker (going so far as to by Fernandez a house next to Bruce's).
  • Reply to @Shostakovich: Yeah, I think Berkowitz is a talent, but I didn't like the Barrons article discussing Fernandez (who went on to open his own hedge fund - Barnstar, which sounds sort of like a country band.) Additionally, I just don't get how any manager could think that people won't run on a bad year. As much as I dislike Cramer, I continue to recommend "Confessions of a Street Addict", Cramer's first book - which goes into great detail about Cramer thinking, "I've made so much money for these people, they're not going to leave." Then they do - to the point where the fund almost has to close.

    I'd like the idea of a lock-up period if a fund had greater flexibility/tools than a mutual fund - if not, no.
  • Reply to @mns: Ackman's fund is going to IPO on the London Market, it would appear.

    http://www.valuewalk.com/2013/01/pershing-square-capitalizes-new-hedge-fund-with-over-1b-ahead-of-ipo/

    Third Point (Dan Loeb) is another large hedge fund that has a London listing, although the shares have traded at enormous discounts to NAV at times.

    Greenlight, Third Point and SAC have started up reinsurance companies whose floats are invested in the same manner as the hedge funds in order to get permanent capital, but only one - Greenlight - is public, and the reinsurance side of it continues to lag.
  • Reply to @scott: Scott, be interested in hearing your thoughts on your last sentence. Would you elaborate?

    Cheers.

    D.S.
  • edited February 2013
    Reply to @Shostakovich: Well, I suppose as a generality, if I'm getting the same abilities as a current mutual fund, then I wouldn't be as interested. If there was a "bridge" product - not quite a hedge fund, more flexibility than a mutual fund - then I think I'd be much more interested in a fund with a lock-up. Funds that could go into private equity, tactical trading, etc. John Paulson's Real Estate Recovery Fund - private real estate fund with a lock-up - that fund owned/owns 25,000 homes bought at distressed prices in the states that were most distressed. Maybe not something on that scale, but a private fund for retail investors with a lock-up that could be opportunistic about real estate or even a blended public/private real estate fund.

    I don't know - there's a hundred possibilities, but if it's just the current mutual fund structure and now there's a lock-up of a year or more, then no. If something beyond the current structure can be brought to the table, I'd be more than happy to consider a fund with a lock-up period. As for current mutual fund managers, there's fewer and fewer highlights as a number of them have went to hedge funds.

    Edited to add: now I really don't think this will happen lol

    http://www.marketwatch.com/story/sec-panel-seeks-stock-exchange-only-for-the-rich-2013-02-01?link=MW_home_latest_news
  • Article today regarding:
    "Berkowitz Adds Junk Debt on Top of BofA ‘Priced to Die’":
    berkowitz-expects-watershed-2013
  • edited February 2013
    Thanks mns, scott, bee. I like idea of Fairholme pursuing a closed-end offering. Seems to fit. I will add "Confessions of a Street Addict" to my reading listing. And, I respect that Mr. Berkowitz just puts himself out there, consistently exercising his courage of conviction. My two cents. Here is FAIRX lifetime performance depicted in current shareholder letter:

    image
  • edited February 2013
    Reply to @Charles: "Confessions" is not the world's greatest book on finance, but I think it's enjoyable from the standpoint of being entirely different from the "Mad Money" Cramer, and taking a look at his hedge fund period (and how much his ex-wife was a factor in teaching him and getting him to where he is today.)

    Another book I'd definitely recommend is "Street Freak", which - to me - is sort of like the Wall Street version of Anthony Bourdain's "Kitchen Confidential". It's a really interesting look at the life of a trader, but it's a darker book, as the author has emotional problems and literally goes through a breakdown in the book while working at Lehman. Both a really interesting look at the day-to-day life of a trader and someone whose emotional difficulties gradually got worse - at one point he winds up in a psych ward. It also illustrates what things were like in Lehman leading up to 2008.

    David Einhorn's book, "Fooling Some People All Of the Time" is also well worth a read, as is Ackman's "Confidence Game".
Sign In or Register to comment.