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Small California Fund Companies Collaborate to Attract New Assets

Starting a mutual fund from scratch can be a trying experience, especially for a former portfolio manager with limited funds and virtually no marketing experience.

For Nicholas Gerber, it meant cold-calling hundreds of financial intermediaries each month and handling all the day-to-day operations of his fund, while keeping costs at a bare minimum and trying to develop an outstanding performance record.

"I'm quite sick of the cold calling," said Gerber from his home-based office in Moraga, Calif., a suburb of San Francisco. "In three years, I've contacted 6,000 people and now we have a mailing list of about 500 (investors and financial advisors). It's not mass marketing. It's head to head."

Gerber started his fund, called AmeriStock, in 1995. But the first breakthrough did not occur until late last year, when assets topped $25 million and AmeriStock's track record became eligible for review by the financial services rating agencies. If there was one thing AmeriStock had, it was performance. The fund, which invests in Blue Chip stocks, returned a total of more than 75 percent to investors in the three years from 1996 through 1998, putting it at the top of its peer group. Since September 1998, when AmeriStock first hit the charts, it has been rated a five-star fund by Morningstar each month, drawing AmeriStock some mention in national financial publications.

Now, Gerber is hoping to take his fund to the next level with the help of other mutual fund entrepreneurs like himself in the San Francisco Bay Area. A few months ago, Gerber, through a representative of Ameristock's custodial firm, Fifth Third Bank, was introduced to another mutual fund founder also working out of his home, Mike Boyle of the Boyle Fund, based in San Francisco.

"He (Howard Kaplan, the Fifth Third rep) said he knew of a larger investment group in Ohio that was getting together to discuss issues and that it seemed to be helping individuals there," said Gerber.

After Boyle and Gerber met, a third person, Linda Pie, who runs the Women's Equity Mutual Fund, joined them. Within a few weeks, five founders of mutual funds had found one another. The other two group members are Tom Thurlow, whose Thurlow Fund is based in Palo Alto and Malcom Fobes, who runs the Berkshire Capital Growth Fund, based in San Jose.

Now, each month, the entrepreneurs get together to discuss day-to-day operations, either at one of the group member's homes, over lemonade or iced tea at mid-day or ordered-in lunch. Or, they go out to dinner or lunch.

"We compare and contrast notes," said Gerber. "We give each other a little bit of support and help each other find resources like a good printer or lawyer .. and how to comply with this or that SEC ruling."

"It's fun to get together with like kindred spirits and to talk to people who say: `Don't you hate people who ask what the hottest stock is?'" says Gerber.

A typical get-together starts with a discussion of the status of each fund. Then the group focuses on a specific question. For example, a recent meeting was to take up consideration of Thurlow's hope to switch transfer and pricing agent services. Participants planned to share research they had done on the subject.

For another session soon, the group expected to invite a public relations consultant who had contacted one group member to offer her services.

By far, how to conduct effective public relations and marketing with minimal budgets is the overriding concern of the group and the areas in which the members feel they can most be helpful to each other. Even though each has had some measure of success commanding some public attention, they all look to the group for ideas and support.

Pie, whose fund invests in companies with friendly policies towards women and has about $5 million in assets, is the only member of the group who operates in an office outside her home, in San Francisco. Hers is the only fund that has been included in Charles Schwab's supermarket of funds.

Boyle's $2 million fund, started in 1998, focuses on California-based technology, financial services and pharmaceutical firms. Boyle's marketing efforts are limited to a direct-mail campaign and word-of-mouth.

Thurlow, who invests primarily in stock options and has about $1 million under management, is called "the gunslinger in the group," by Fobes because of his propensity to invest in relatively risky vehicles. Thurlow has tried to market himself at financial services trade shows and by subscribing to two companies that circulate financial press releases.

So far, cooperative efforts between the group members have included Gerber and Thurlow purchasing booth space at a financial planning seminar sponsored by a local newspaper.

The group is now considering jointly sponsoring a seminar for local investment advisers.

"We have very different investment discliplines, so that's a marketing effort that we could do jointly," said Gerber.

Even Fobes however, anticipating a potential marketing windfall, expects the group will be able to assist him in his good fortune, should it materialize. Fobes' fund, which invests in 20 stocks, with a "bias toward large cap technology companies in the Silicon Valley," could enjoy a major boost in sales if, as he has been informed, his fund is featured as Rookie Fund of the Year in Mutual Funds Magazine. The fund had a 104-percent gain in 1998, the fund's first full calendar year.

The higher profile could, however, not only bring in assets but it could also present him with logistical problems. So, Fobes said he will be relying on the other group members to help him figure out how to handle a deluge of phone calls, if they come.