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Tocqueville on Fund Acquisition Roll


Tocqueville Asset Management of New York has a voracious appetite. As part of an effort to grow its $2.2 billion in assets to $3 billion over the next six months, the firm has been actively acquiring mutual funds.

Within the past few weeks, the firm has been named the investment advisor to a stand-alone fund previously managed by New York-based investment manager Haven Capital Management. Tocqueville has also merged a second fund previously managed by Lepercq, de Neuflize & Co., also of New York, into its flagship fund.

While the additional $97 million in assets these two new funds bring may not look significant, the acquisitions bring Tocqueville's mutual fund assets to $360 million. Additional plans are in the works to bring two other investment managers in-house during the second quarter of 2002 and potentially create new mutual funds.

Two Different Approaches

According to documents filed with the Securities and Exchange Commission, The Haven Fund named Tocqueville as advisor to retain the same portfolio manager. Colin Ferenbach had been sole portfolio manager and founder of the fund at the fund's advisor, Haven Capital. But when Ferenbach left Haven in mid-January to join Tocqueville as a managing director, The Haven Fund's board voted Feb. 25 to terminate the fund's advisory contract and approve a new contract with Tocqueville as the advisor.

"The continuity of management was an important factor to the board," Ferenbach said in an interview. The now $78 million fund, which Ferenbach founded in 1984, originally started out as HCM Partners, a limited partnership with $3 million. But the fund was converted into a registered mutual fund in 1994, and Ferenbach continued to manage it.

The transition of the fund to Tocqueville's stewardship was seamless, Ferenbach said. The fund, which has now become Tocqueville's fifth mutual fund, had the same administrator, distributor and independent accountants, and will continue to be managed in a the same mid-cap value investment style, he added.

The fund's name, however, has since been changed to the Tocqueville Alexis Fund, taking the first name of Alexis de Tocqueville, the nineteenth century French politician and writer for whom the fund group was originally named.

Tocqueville is also in the process of merging the $19 million Lepercq-Istel Fund, the sole fund of the Lepercq-Istel Trust managed by Lepercq, de Neuflize & Co., into the $61 million Tocqueville Fund. The tax-free exchange of shares will take place if shareholders approve the transaction at a meeting scheduled for next month.

"They had a single fund, and it made sense for us to take it over and merge it into the Tocqueville Fund," said Robert Kleinschmidt, president of the firm. The two funds even shared a common board member who presided over both funds, according to SEC documents. The Lepercq-Istel Fund is a large-cap blendfund.

Revamp or Merge?

Of course, merging the Lepercq fund also allows Tocqueville to bury the former fund's performance losses. Although the Lepercq-Istel Fund gained 30.5% in the boom year of 1999, according to Morningstar of Chicago, its performance otherwise has been dismal.

It lost 47% of its value in 2000 and 2001. And its pallid 10-year annualized return of 6.4% through April 9, 2002 won it the dubious place of honor of lagging behind 98% of all other funds in its Morningstar fund group.

The Tocqueville Fund has fared somewhat better over the longer term, returning an annualized 13.1% over the past 10 years, according to Morningstar. But this value fund also struggled last year, losing 6.3% and lagging behind most of its peer funds.

Lepercq is no stranger to Tocqueville. The two firms have shared the same office floor for the past 10 years. "We've been combining operations with them in order to gain operating efficiencies," Kleinschmidt said. "There was always the intent to do more with them." In fact, according to publicly filed documents, the two firms have now combined their broker/dealer distribution operations, and renamed the unit Lepercq, de Neuflize/Tocqueville Securities.

Moving Into Funds

Tocqueville, with total assets of $2.2 billion, predominantly manages the assets of wealthy clients and families. "Mutual funds are not our core business and never will be," said Robert Kleinschmidt, president of the firm.

Still, Kleinschmidt conceded that his firm has been on a roll, opportunistically scooping up "only child" funds that dovetail nicely with the Tocqueville style and culture.

Tocqueville's mutual fund group also includes the new Tocqueville Alexis Fund, the flagship Tocqueville Fund, a small cap value fund, an international value fund and a gold fund.

"Don't be surprised to see more additions to managers and more mutual funds added or created," Kleinschmidt said. He confirmed that he is in discussions with two more managers of outside firms now. While neither one of these individuals currently manages a mutual fund, one in particular has a growth equity strategy that significantly differs from Tocqueville's longstanding contrarian/value bent, Kleinschmidt said. "So I am likely to create a mutual fund for him that leverages that style."

Adopting both The Haven Fund and the Lepercq-Istel Fund was not Tocqueville's first attempt at building its asset base and mutual fund offerings. In the summer of 1998, Tocqueville was hired as the interim advisor to the Fundamental Funds, the $152 million group of fixed-income funds that was managed by the now-defunct Fundamental Portfolio Advisors of New York. But through a series of events, that deal fell through.