The San Francisco investment bank of Hambrecht & Quist, known for taking companies public, is banking on that same line of business with its first open-end mutual fund.
The fund, the Hambrecht & Quist IPO Discovery Fund, is still in registration with the SEC. But, should it receive regulatory approval, it will join only one other pure IPO fund on the market. That fund, the IPO Fund, is run by Renaissance Capital Corp. of Greenwich, Conn., a company that has done research on IPOs for institutions since 1991.
The Hambrecht & Quist fund is being run by a newly created investment adviser, Hambrecht & Quist Fund Management, whose new president, David Krimm, is also director of marketing at Hambrecht & Quist. Hambrecht & Quist Capital Management, a Hambrecht & Quist subsidiary, already runs two closed-end funds that invest in health care and life sciences.
Hambrecht & Quist's creation of an IPO fund comes just a few months after Hambrecht & Quist's founder and former chief executive officer, William Hambrecht, created a new company that makes IPOs available to the investing public over the Internet called W.R. Hambrecht + Co. It has no legal connection to Hambrecht & Quist, only the same founder.
Hambrecht & Quist Fund Management decided to create an IPO fund as its first fund because of its ties to the IPO market, said Krimm.
"H&Q is known for getting involved in emerging growth companies," Krimm said.
After an initial subscription period through discount brokerage Charles Schwab, the fund will be sold through Schwab and Hambrecht & Quist's own force of 80 brokers who sell to high net-worth clients.
More funds are to follow, although no more have been developed at this point, Krimm said.
Any additional funds will most likely be sub-advised, like the IPO Discovery Fund, by Symphony Asset Management, also of San Francisco.
"Our experience is more in the marketing side and product development (and not in fund management)," Krimm said.
While Renaissance Capital has been alone in offering this type of product on the retail market since it opened the IPO Fund in December 1997, William Smith, president and IPO Fund portfolio manager, says he welcomes Hambrecht & Quist's new offering into what he says is currently a "decent" market to bring an IPO.
"It really validates what we are doing," said Smith. "It's a big market. There's a lot to be done."
The IPO Fund is sold directly and through fund supermarkets and has pulled in $15 million since its inception. Its year-to-date return as if June 18 was 25 percent. In 1998, it returned just over 18 percent. But, 1998 was rocky as the fund posted negative returns in the second and third quarters. In the third quarter, the fund incurred a 22.3 percent loss.
"It can be violent," Smith said, referring to the IPO market, which he said has produced unrealistic expectations this year because of hot Internet offerings.
Symphony Asset Management is sub-advising the Hambrecht & Quist fund with a quantitative model that uses historical IPO performance to pick stocks, according to its SEC filing. Renaissance provides more qualitative, "turn-over-the-rock" research, according to Smith. These two approaches separate the two funds stylistically, he said.