Citco-Quaker Fund Services, the fledgling U.S. mutual fund administrator in Valley Forge, Pa., is adding asset management to its repertoire of mutual fund services. Right now the firm provides back-office services such as fund custody, accounting and transfer agency.

The firm has created Citco-Quaker Fund Advisors, a new investment advisory division established to initially become the manager of The Penn Street Fund, a series of five separate fund portfolios with $7 million in collective assets. But Citco-Quaker is keeping the new advisory unit's momentum going. The company confirmed that it is in talks to provide similar advisory services for several other fund groups through the unit.

If shareholders approve the change at the April 1 meeting, Citco-Quaker will become the new adviser to all five portfolios of The Penn Street Fund. Citco-Quaker has been providing back-office and administrative services to the fund complex since last August. This is the first fund group for which Citco-Quaker will serve as the investment adviser, essentially acting as a manager of mangers.

Tapping a New Revenue Stream

In adding its investment advisory services, Citco-Quaker is feathering its nest by building in a secondary revenue stream. If approved as the successor adviser to The Penn Street Funds, Citco-Quaker will be eligible to siphon off a piece of the management fees charged on each of the five portfolios.

A preliminary shareholder proxy filed with the SEC on March 13 indicates that the new advisory contract will include an increase in the management fee for each of the funds. While the magnitude of that increase is not clear, Citco-Quaker confirmed the increase but noted that the majority of each fund's management fee will be paid downstream to the individual sub-advisors

The Penn Street Fund is advised by Millennium Capital Advisors, the investment management division of Millennium Bank of Malvern, Pa. Prior to changing its name to Millennium Capital Advisors in October of last year, the money management unit was known as Penn Street Advisors.

Millennium Bank acquired Penn Street Advisors in 1998. But at that time the firm only managed two portfolios. Four of the current five funds are subadvised by and branded with outside investment managers locally headquartered in Pennsylvania and New Jersey. The fifth, a sector rotation fund, is proprietarily managed by Millennium Capital. Included in the lineup are the Baldwin Large-Cap Growth Portfolio, the Cumberland Taxable Income Portfolio, the McGlinn Balanced Portfolio, the Walnut Asset Management Equity Portfolio and the Penn Street Advisors Sector Rotational Portfolio.

Adding Not Detracting

"We're not going off in a different direction, although it may appear so," said David D. Jones, President of Citco-Quaker Fund Services. "The investment management component was one of the things our company was missing."

Citco-Quaker, a subsidiary of international financial services company The Citco Group Ltd., headquartered in Amsterdam, the Netherlands, entered the U.S. mutual fund administration business only last summer. At that time, the firm formed a joint venture with JKG Partners of Valley Forge, Pa., which is affiliated with Quaker Management Corp., also of Valley Forge. Quaker Management is the investment advisor to the Quaker Investment Trust, a group of eight predominantly sub-advised mutual funds with a collective $196 million in assets.

Citco-Quaker took over the Quaker funds' back-office administration last July. Citco-Quaker also provides fund administrative services to the $11.5 million religiously managed The Noah Fund.

Realizing that Citco-Quaker was enjoying better economies of scale, The Penn Street Fund group's executives subsequently discussed handing over the management function as well, Jones said. "We're building this company on servicing other companies," Jones said. "We're not looking to be the biggest; we're looking to be the best."

Like other more veteran full-service third-party fund administrators such as SEI and Federated Services Co., Citco-Quaker will also eagerly provide a ready-made board of directors as part of its broader turnkey platform of fund services, Jones said. Pending shareholder approval of the new director-nominees, The Penn Street Fund will be installing a new board of directors, comprised of seven members including Jones and G. Michael Mara, president of The Penn Street Fund and Managing Director of Millennium Capital. Only one of the fund group's former independent directors is standing for reelection.

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