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Small Fund Watches Game from The Dugout on Purpose

Think back to 1985 and remember the John Fogerty song, "Centerfield": "Put me in, coach. I'm ready to play today. Look at me. I can be centerfield."

Although many Money Management Executive readers are already successfully in the game, some smaller firms are watching it from the bench.

Out of nearly 6,000 mutual fund portfolios, more than 800 funds have assets of only $50 million to $100 million, and more than 1,400 have less than $50 million, according to mutual fund research firm Financial Research Corp. of Boston. Some of these small funds are products from fund giants that have not been aggressively marketed. But others are run by smaller firms with limited budgets, limited brands and limited sales, marketing and distribution strategies.

With reduced margins as a result of bear markets, increased compliance costs and fund scandals, some small funds are finally considering strategies to get in the game so that they are not eaten up by their competition. Dan Sondhelm, vice president and partner with fund marketing and public relations firm SunStar of Alexandria, Va., recently spoke with Timothy J. Wahl, president of GKM Advisers of Los Angeles , about how he expects good performance will attract more assets to his fledgling, four-year-old GKM Growth Fund, which has $35 million under management.

MME: Since GKM Advisers manages private accounts for high-net-worth individuals, why did you launch your mutual fund?

Wahl: GKM Advisers is a registered investment advisor focused on the long-term, after-tax growth of capital. We were spun off of Gerard Klauer Mattison when they were purchased by the Bank of Montreal in July of 2003. We manage approximately $500 million in individual accounts of high-net-worth individuals.

The fund came about as a function of our core business, in that it enables us to provide equity management to family and friends with smaller accounts. For example, we manage third- and fourth-generations of wealth. These accounts can start off small as gifts, or, perhaps, educational or trust accounts, so we started the fund to facilitate the management of these smaller accounts and to provide our clients with the appropriate risk management through diversification.

MME: Did having a public track record come into play?

Wahl: Over the years, we have been asked by referrals, the media and different distribution channels about our record. We've never published a composite, as our accounts have individual investment objectives. We have long-standing relationships, and the portfolios reflect each individual client.

The mutual fund was a way to develop a public track record for a very private investor.

MME: What sort of success did you think you would have when you launched this product four years ago? Did you think you'd have more than $35 million in assets by now?

Wahl: We started the fund with no other purpose than to serve our clients. Looking at the economics of running a mutual fund, we knew it wasn't going to be a huge moneymaker, but we knew it was the right thing to do for our clients. My initial expectations were to raise $10 million the first year and approximately $30 million over the first three years to get us to break-even.

MME: Are you profitable at this point in the game?

Wahl: We are covering the costs. With $35 million dollars in the fund, as you can imagine, we are not hugely profitable.

MME: So what are your asset goals, if any?

Wahl: Strange as it may sound, we have never been focused on goals such as assets under management other than to at least break even after all operational costs are considered. We don't have a plan of when or how to reach, say, $100 million. But, based on past performance, I had a feeling we would rank highly with Morningstar and Lipper, and we have. I believed over time our performance would merit attention, but it's tough to cut through the ephemeral investment clutter of today's investment environment.

MME: How have you found it difficult to compete?

Wahl: We are too small for many in the institutional world, although we are beginning to have conversations with various smaller institutions. As for the retail market, it is difficult simply due to the sheer number of funds competing and marketing dollars spent. An unexpected benefit of our strong performance has been the fact that we're now managing assets for advisers around the country who have found us through the fund, and we're working toward making our services available on the separate account platform.

MME: Are you on such distribution platforms as those at Schwab and Fidelity?