We recently received an email from an investor who posed a few well thought questions about our funds and our company. We thought other investors following the development of Steadyhand may find these questions, and our responses, informative.
Q: I recall reading in one of Tom's columns about his search for investment managers to manage his and his wife's personal money, which also described the criteria he was looking for in a money manager. Tom, does a meaningful portion of your personal wealth now reside with the managers of the Steadyhand funds? Certainly, having your interests aligned with mine in this respect would provide great comfort.
A: I'm speaking on behalf of Tom here, but I can confidently say that a notable portion of his wealth is invested in the Steadyhand funds. I can also tell you that everyone on our management team has a notable portion of their wealth invested in our funds as well.
Q: Tom has written about investment managers who are "asset gatherers" and "index huggers" rather than true stock pickers. I think this problem/issue is endemic in the money management industry...I would be interested in your views on a reasonable amount of assets for your funds. What do you see as the optimum size for the small-cap fund and the North American fund?...And while you may be able to limit the size of your funds, will Cranston, Gaskin and Wutherich continue to gather assets from other avenues? If Wutherich is successful, how do I know that 5 or 8 years from now his assets under management will not have grown to an "unwieldy" size?
A: Your question on asset size is a good one, and this is an issue that tends to be overlooked by a lot of investors. We feel that the optimum size for the Small-Cap Equity Fund is around $125-150 million, and we have been transparent in out intent to close the fund to new investors when it approaches this level. While our other funds have much more capacity, we intend to carefully review them periodically to ensure that "asset bloat" does not impact their managers' investment approach.
We have an ongoing dialogue with our managers, and they have been clear that they will let us konw if capacity becomes a problem with the funds. While we do not have an optimal size in mind for our other two equity funds, we intend to undertake an extensive capacity review when they hit $500 million.
If and when we cap our funds, there is no guarantee that our managers will not continue to gather assets from other avenues. However, as previously mentioned, they have been clear with us that they will not jeopardize their investment approach by taking on excessive assets. All three of our equity managers have chosen to be "investment boutiques." All of their principals worked for larger firms in their "past lives" and started their own firms because they didn't like the bureaucracy and constraints that come with managing large amounts of money. Tom specifically poses the question of capacity to Dr. Sandy Nairn, the CEO of Edinburgh Partners (the manager of the Global Equity Fund), in a podcast that he recorded with him in July.
If you have any unanswered questions about Steadyhand, feel free to drop us a line.