MUTUAL FUND PLACES BET ON PRIVATE EQUITY: PLAY WITH THE BIG GUYS FOR A MERE $1,000

The new mutual fund launched last week by New York investment banking boutique Trautman Kramer & Co. is the first to be marketed as a way for small investors to invest in private equity — just like their wealthy brethren.

The Trautman Kramer Value Plus Fund, which will invest 10% in companies that are not yet public, got the go-ahead from the Securities and Exchange Commission late last month (InvestmentNews, March 30).

“Think of our fund as a hedge fund for the common man,” says Stephen Heins, Trautman Kramer’s director of marketing, noting that the firm hopes to appeal to small investors barred from investing in buyout funds, hedge funds, and venture capital funds.

Since 1996 over $60 billion in new investments has flowed into private debt and equity markets, according to investment bank Ferris Baker Watts Inc. The top private equity funds have rewarded their investors with average annual returns of 50% or more. Small investors have missed out because federal law allows only institutional investors and the most well-heeled individuals to invest in such equity funds.

Value Plus, a load fund with a 1.5% expense ratio, will be open to anyone with $1,000 to invest. The firm’s chairman, Robert Kramer, draws a parallel between his fund and the new Renaissance IPO Plus Aftermarket Fund, which invests almost exclusively in initial public offerings.

While this is not the first mutual fund to invest in private equity, it is the first to use that as its key selling point.

The subadviser of the fund is Tocqueville Asset Management Corp. The portfolio manager, Robert Kleinschmidt, also runs the Tocqueville Fund — a large-cap value fund with a four out of five star rating from Morningstar Inc. in Chicago.

Even if Value Plus has the good fortune to invest only in successful companies, it could be years before shareholders reap any rewards. That’s because Trautman Kramer must value private holdings at the price at which the securities were last sold. Private equities trade infrequently, so investors may not see profits for up to four years — until companies go public or are bought.

Nevertheless, the novelty of private equity may be too much for some investors to pass up. “From a marketing point of view, it’s definitely a good idea,” says Thomas Courtney, an investment banker who advises mutual fund companies.

Crain News Service