Skye Investment Advisors
is closing its BearGuard Fund, but the Los Gatos, California firm still hasn't lost hope in its trademark short strategy. The firm has learned from the marketing failure of its all-short fund with an updated investment style and strategy. Furthermore, Skye has picked up a new principle, Michael Kosich
, once president of Fremont Funds, a nearby boutique.
BearGuard's death throes have been protracted, but the fund will be laid to rest on March 29. Skye had decided to close the fund at the beginning of the year and was in the process of turning it over to another firm. Three quarters of the way through the deal, however, the unnamed taker backed out. A January 21 New York Times article describing the fund's fate spurred further interest which ultimately went nowhere.
"After the deal fell through mid-January, we almost certain were going to get rid of it unless somebody made an extremely firm commitment," explained Tyler Garratt
, vice president. A skittish Skye finally decided to deep six the fund.
Where did BearGuard go wrong?
Garratt said that, despite good performance, the fund languished, with only $1.5 million and 30 to 40 shareholders to date. The firm's initial marketing efforts focused on media attention and the direct market.
"We didn't have a huge marketing or distribution budget," said Garratt. "At first, we were trying to build a PR campaign and at least get the fund known. we did a little bit of Internet advertising to try to build the awareness first. That never materialized, so we never moved onto the next step."
An all-short strategy is too esoteric for most investors, but Skye focused on the retail market. Furthermore, BearGuard was not available through Schwab
. Many advisors who expressed interest in using the fund were also unable to access it easily, so the firm lost potential sales.
"Schwab required either two years of operation or $10 million in the fund and $50,000 up-front and 35 basis points, so they wouldn't have us, you could say," explained Garratt.
Skye has abandoned short only as an investment strategy, turned instead to long-short, adopted about a year ago when the firm opened a long-short hedge fund.
"I think after 14, 15 years years of not raising assets in one style, we might be a little stubborn, but we got the picture," said Garratt. "We realized that, as a business proposition, it wasn't very good. From a practical, investment standpoint, it was really great, but the world doesn't always work that way."
Skye has learned the importance of marketing in the fund world, but it takes away more than just the sour taste of unripe fruit.
"The most important lesson is, it's taught us how to do short investing," said Garratt. "A lot of people getting into it won't have the short background. We know the risks and the logistics of handling short selling that a lot of people don't know when they first get into it."
While the firm would consider sub-advising another fund based on its new long-short direction, Skye is not anxious to re-enter the fund universe. Instead, it is opting to stick with separate accounts management and hedge funds and leverage the Kosich's fund know-how.
"We'd be open to it with the right partner," said Garratt. "We like the hedge fund business a little better. There's more freedom, less complications, and it's a more pleasant environment to work in."
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