As it approaches its first birthday, the Gaming and Casino Fund, now managed by Ahrens Advisors of Dallas, is ready to welcome a brand new parent.
This week, Ladenburg Thalmann Asset Management, a division of Ladenburg Thalmann of New York, the sixth-oldest firm on the New York Stock Exchange, will officially adopt the fund and become the investment advisor of the small, sector fund with assets hovering at $3 million. The multi-cap fund narrowly invests in casinos, gaming manufacturers, lottery firms and electronic/video gaming companies.
Dan Ahrens, president of Ahrens Advisors, who quit as manager of the Vice Fund in August 2005, will remain as the fund's sub-advisor and handle the day-to-day portfolio management. Ladenburg Thalmann will handle all of the fund's distribution, which includes marketing and sales. A formal proxy vote approving the new owner was held in late February.
For Ahrens, putting another firm at the helm with broad distribution and the ability to advertise, market and sell the fund while he focuses on what he does best is mutually beneficial. "It's very expensive to run a fund at low asset levels," he said. "I believe Ladenburg Thalmann has the ability to grow the fund in ways that I don't have."
Although the firms declined to provide financial details of the partnering arrangement, Ahrens will be taking a pay cut of sorts. The fund's annual management fee of 90 basis points will not change, but Ahrens will only be paid 40 basis points as sub-advisor. Ladenburg, however, will be absorbing the fund's operational expenses through at least May 31, 2008.
Building a Niche Boutique
For Ladenburg, this niche fund offers it the opportunity to grow beyond its core investment banking business and more quickly expand its asset management capabilities, said Philip Blancato, president of Ladenburg Thalmann Asset Management, the firm's money management unit. That division currently manages about $500 million in assets, predominantly in the form of separately managed accounts for wealthy individuals. The firm is simultaneously broadening its alternative investments and hedge fund offerings, Blancato said. Heretofore, Ladenburg had primarily hung its 137-year old reputation on its investment banking business.
Ladenburg has an existing joint venture relationship with one other mutual fund, the $34 million Boyar Value Fund, which was incepted in 1998 and is managed by Boyar Asset Management. Company founder Mark Boyar serves as portfolio manager of the fund, while Ladenburg focuses on distribution.
Partnering with additional niche mutual funds with great managers and an interesting story to tell is Ladenburg's master plan to build the money management unit.
"We are actively looking for other niche managers," Blancato said. With all of the competition in the mutual fund industry, bringing plain-vanilla funds to market just wouldn't make sense, he said. "We can't compete with the American Funds, but we can bring a casino and gaming fund to market." The goal is to grow the fund's assets to the $20 million level within the next 12 months, then shift to the next level of marketing, Blancato added.
Ladenburg will leverage distribution for the Gaming and Casino Fund through its proprietary network of 90 brokers, as well as relationships it now has with other program providers, including National Financial Services and TD Ameritrade, Blancato said. The intention is to shortly add an A-Share class to complement the fund's existing no-load shares.
One of the goals is to get a toehold into the defined contribution marketplace, he added. A marketing budget has been set, although Blancato declined to provide details. And plans to advertise the Gaming and Casino Fund are being readied.
Not only is Ladenburg banking on the synergies between its longstanding investment banking business and its growing asset management unit, especially where investment banking clients need someone to manage their own assets, but the firm hopes to parlay Ahren's talents toward managing separate accounts for clients or even an exchange-traded fund.
The Adoption Story
So-called fund adoptions as well as outright absorptions are very popular these days, as both larger investment firms and smaller mutual fund managers search to find partners, said Ben Phillips, managing director of Putnam Lovell NBF. In 2006, Phoenix of Hartford, Conn. adopted both the Turner Strategic Growth Fund and Harris Investment Management, the mutual fund unit of Harris Bank, while three of the Baillard Opportunity Growth Funds were adopted by the Highmark Funds group, managed by Union Bank of California, according to Putnam Lovell.
"Interest is coming from both directions," Phillips noted. Investment banks, in particular, are interested in acquiring asset managers because their revenues are steady and more predictable, Phillips added.
Many of the managers that started up a mutual fund in the 90s are disillusioned. "They thought that getting listed on Schwab and having a good story was all it took," he said. The next round of acquirees will be "anyone running a single niche fund or a small group without significant distribution," Phillips predicted.
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