When Ryan Jacob became portfolio manager of The Internet Fund in late 1997, he thought it would be a lark. He never expected a fund that had only $200,000 in assets under management would achieve a return in 1998 of 196 percent, 113 percent in the first six months of 1999 and grow to $700 million in assets under management.
"It clearly exceeded everyone's expectations," Jacob said. "I just thought it would be interesting and fun."
Now the chairman and chief investment officer of his own company, Jacob Asset Management of New York, the polished 29-year-old lists several reasons he now views the Internet as serious business.
He takes a venture capital approach to investing in Internet-related companies, he said. He believes the sector will continue to grow rapidly as the Internet becomes a mass market medium.
Jacob said he does not look at snapshots of financial statements but instead does his own forecasting of a company's earnings three to five years out.
Jacob, who holds a finance degree from Drexel University in Philadelphia, said he also gives a lot of weight to qualitative issues.
"We look at the size of the market, the opportunity the company is addressing, the strength of its business plan to capture that market, and the potential and competency of the management team," he said.
He also said he keeps track of developments in the industry.
"There is something newsworthy happening in this sector every day, whether it be a merger, a regulatory action or a system problem," Jacob said.
Jacob got into Internet investing through insight into initial public offerings he gained at Horizon Asset Management in New York. There, he worked as an analyst and as director of research for IPO Value Monitor, a Horizon newsletter. After his colleague Peter Doyle left the firm to form Kinetics Asset Management of North Babylon, N.Y., the investment adviser to The Internet Fund, Doyle invited Ryan to join him.
Jacob worked as the fund's portfolio manager not out of the adviser's Long Island headquarters but out of the New York offices of investment management firm Lepercq, de Neuflize & Co. In early June, Lepercq considered acquiring Kinetics, said Jacob. When the deal fell through at the end of the month, Jacob tendered his resignation.
"I did not feel comfortable staying at the fund when the deal fell through," he said. He declined to comment further.
Jacob said he is not receiving any financing from Lepercq or Kinetics for his new venture but is using money of his own that he invested in The Internet Fund.
"I've pretty much leveraged everything I have into this," he said.
He filed a prospectus with the SEC on July 15 to launch the Jacob Internet Fund, which he plans to offer after Labor Day. He said the no-load, open-end retail fund will invest "solely in Internet-related companies that derive a majority of their incomes from the Internet."
But, Jacob does not plan to stop there. He is talking with a number of advertising and public relations firms, on-line mutual fund distributors and investors in anticipation of making Jacob Asset Management an Internet investment boutique offering institutional products, a hedge fund and both retail and institutional products overseas. Jacob has hired three analysts and expects to have a staff of ten by year-end.
Jacob said he is not disappointed that NASD regulations prevent him from using his performance figures while at The Internet Fund for advertising his new fund. He does plan to use, as SEC regulations allow, his track record in the fund's prospectus.
"Literally tens of thousands of investors from that fund have contacted me," he said. "You would be surprised how persistent some can be." He has received wide media coverage and is on the cover of the August issue of Kiplinger's magazine.
Jacob said he is undaunted by the numerous predictions that the Internet boom is a bubble bound to pop. The Internet still has yet to become a mass medium and will remain in a rapid growth mode until that time, he said. However, he does not expect the astonishing returns recently achieved by Internet funds to continue forever.