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Update: Change in plans--Frontier recently amended the filing referred to below. The amended filing makes no mention of Rebellion Asset Management, contains no reference to GIPS, and uses completely different language to describe the strategy. The reason? It appears that Frontier ultimately opted for a different small-cap growth manager, Timpani Capital Management. Brandon Nelson, formerly of Wells Capital (and before that Strong Capital) will run the fund, which is to be known as Frontegra Timpany Small Cap Growth. It appears that Frontier has taken a majority stake in Timpani, which is a start-up. So we were recently reviewing a filing for a forthcoming small-growth mutual fund--Frontegra Small Cap Growth--and stumbled upon something: The sub-advisor, which is described in rather specific terms (all the way down to the nature of the strategy they employ when running money), doesn't exist. Or at least not in any practical sense.
You see, the sub-advisor in question, Rebellion Asset Management, is--best we can tell--a shell. The subadvisor's two principal owners, William Forsyth and Thomas Holmberg, also happen to be the principal owners of Frontier Partners, a Chicago-area based 'solicitor' for asset managers. Essentially, they help asset managers, start-ups and spin-offs especially, with marketing, business development, distribution, and the like. But Rebellion doesn't run any money. Yet.
Chances are that Rebellion will serve as the future home of, or affiliate to, a manager that has spun-off from another firm. The language in the Frontegra fund's prospectus refers to "GIPS", a performance-reporting standard that the fund will use in setting forth the sub-advisor's results at a previous charge. GIPS only permits such reporting in certain, carefully prescribed circumstances. One of the criteria that Frontegra Small Growth Fund must meet in reporting the sub-advisor's prior results is manager continuity--the management team responsible for amassing the record in question must remain substantially intact at its new firm. Given that, the most plausible scenario is a spin-off or lift-out, where the manager and his team bolt their previous firm en masse for another shop (i.e., Rebellion).
And that's to say nothing of the fact that there's precedent for this--several of the funds in Frontegra's line-up are being run by managers that spun-off from their former firms, presumably with Frontier's assistance.
So, who's going to manage the Frontegra fund? We ran certain telltale phrases describing the Frontegra fund's investment process through an Edgar-parser. One strategy in particular came back as a near match: Boston Company Small Cap Growth.
Here's the prospectus language describing the Boston Small Company Growth Fund's investment process: "Theadviser selects stocks by: - Usingfundamental research to identify and follow companies considered to haveattractive characteristics, such as strong business and competitive positions,solid cash flows and balance sheets, high quality management and highsustainable growth. - Investingin a company when the adviser's research indicates that the company willexperience accelerating revenues and expanding operating margins, which maylead to rising estimate trends and favorable earnings surprises.
The adviser focuses on individual stock selectioninstead of trying to predict which industries or sectors will perform best.Each fund's investment strategy may lead it to emphasize certain sectors, suchas technology, health care, business services and communications."
Now compare to the language used in the Frontegra fund's prospectus:
"Rebellionresearches the fundamental attributes of companies in order to identify andtrack companies with the following characteristics: strong competitivepositions; high quality management; sustainable growth; strong cash flows andbalance sheets; sales momentum; credit worthiness; accelerating revenues; andexpanding operating margins. This methodology allows Rebellion toidentify small cap companies which are experiencing or which Rebellion believeswill experience rapid earnings or revenue growth. Though Rebellion’smethodology is based on individual stock selection rather than attempting topredict which industries or sectors will perform the best, Rebellion’sinvestment strategy may result in the emphasis of certain industries orsectors, such as technology, health care or communications"
It's essentially the same description, with a few words moved around here and there.
The managers of Boston Company Small Cap Growth Fund are B. Randall Watts and P. Hans Von Der Luft. As of Sept. 30, 2007, they were running slightly more than $1.5 billion across a number of retail and institutional small-cap products, according to relevant filings.
As of this writing, the Boston Company fund's advisor had not amended its prospectus to announce a manager change, meaning that Watts and Von Der Luft remain on the job. Assuming we're not grossly misreading what's happening here, we wonder for how long.
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