Wednesday, January 17, 2007

Numeric Investors Abandons Shareholders and Closes Mutual Funds

On January 12, Numeric Investors announced its decision to exit the mutual fund business in order to focus on its core institutional and alternative-investment products. As a result, Numeric’s four mutual funds—Emerging Growth, Growth, Small Cap Value, and Mid Cap—will be liquidated on February 23, 2007, although the board of directors may approve an earlier liquidation.

Numeric’s failure points out a common problem in the mutual fund world. If you manage your mutual funds with your investor’s interest at heart, you are compromising your profitability. For example, Numeric closed three of its four funds to new investors at very reasonable asset levels, and these funds have been closed for quite some time. Current assets across all four funds total approximately $450 million, and only Mid Cap remained open when the decision to liquidate was made.

By closing these funds to new investors, N/I preserved its ability to generate consistently good returns. However, it hurt the firm’s ability to generate enough business to offset the increasing costs and regulations associated with running a mutual fund. Numeric Investors no longer wants to be in the mutual fund business because it is more profitable for them in their asset constrained environment to focus on institutional accounts. It can cut down on support staff and then fully deploy its investment staff in the more profitable institutional arena.

It is a shame that the firm has abandoned its original vision and is now hurting the very shareholders that it so enthusiastically wanted to help when the firm began.

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