First Eagle stars begin running their own funds

Two members of the team responsible for the success of the First Eagle Funds Group began running their own funds last week.

Charles de Vaulx and Chuck de Lardemelle started Wednesday as co-managers of the IVA International Fund and IVA Worldwide Fund from International Value Advisers LLC of New York.

Prior to joining International Value Advisers in May, Mr. de Vaulx was chief investment officer at Arnhold and S. Bleichroeder Advisers LLC of New York, adviser to the First Eagle Funds Group. Mr. de Lardemelle was a senior vice president and associate portfolio manager at Arnhold and S. Bleichroeder Advisers until he left in September 2007.

The launch of the IVA funds should be good news to financial advisers.

Mr. de Vaulx and Jean-Marie Eveillard, who is still with Arnhold, helped make the First Eagle funds a success, said Bridget B. Hughes, a senior analyst with Morningstar Inc. of Chicago.
The $22.5 billion First Eagle Global Fund (SGENX) and the $8.3 billion First Eagle Overseas Fund (SGOVX) consistently rank as Morningstar favorites, she said.

“What’s really great about them is their ability to hold up so well in times like these,” Ms. Hughes said.

Although both are in negative territory — year-to-date as of last Tuesday, the First Eagle Global Fund was down 13.43%, and the First Eagle Overseas Fund was down 16.48% — both were doing much better then the majority of their peers.

The First Eagle Global Fund was among the top 18% of funds in the world allocation category, and the First Eagle Overseas Fund was among the top 2% of funds in the foreign small/mid-value category, according to Morningstar.

The new IVA funds will be managed in much the same way as those First Eagle funds, Mr. de Vaulx said.

“Our philosophy is that capital preservation should be very much sought after in difficult times,” he said. That means investing in companies of any capitalization that have fundamental value, financial strength and stability, Mr. de Vaulx said.

In order to mitigate risk, both funds may hold substantial amounts of cash, as well as junk bonds, distressed securities, precious metals, real estate interests and commodities, he said.

For example, currently, the funds hold more than 30% in cash because of the volatile U.S. market, Mr. de Vaulx said.

“We’re worried that if the U.S. market falls 10% to 20%, it would be delusional to believe our foreign stocks, no matter how cheap, will stabilize at current levels,” he said.

It is a legitimate worry. U.S. consumer debt is 350% of gross domestic product, Mr. de Lardemelle said.

“That’s the highest it’s ever been,” he said. “De-leveraging still needs to take place.”

Luckily, there are a few places that Mr. de Vaulx and Mr. de Lardemelle see value. One is Japan, Mr. de Vaulx said.

In some ways, Japan represents the “opposite” of the U.S. market, he said. After years of underperformance, it is experiencing an “irrational lack of exuberance,” Mr. de Vaulx said.

“Japanese companies are in superb shape,” he said. “If anything the problem is the balance sheets are too strong.”

They have piles of cash just sitting on the sidelines, cash that would be better used if it was being put to work, Mr. de Vaulx said.

No matter how strong an investment story he lays out, however, he said that he understands that launching funds in this market is difficult. But there are advantages, the most obvious of which is that the funds will be able to pick up stocks cheaply, Mr. de Vaulx said.

Just because he was instrumental in the success of the First Eagle funds, however, doesn’t necessarily mean that he will have the same success with his new funds, Ms. Hughes said.

“We have this record, and idea how he will invest,” she said. “But we don’t really know how he’ll perform until he has established a track record with these funds.”

Having said that, Ms. Hughes had high hopes for the two funds. “We’re looking forward to watching the funds,” she said.

The funds won’t be assigned ticker symbols until they have $15 million in assets.

E-mail David Hoffman at [email protected].