Eagle_1

At Bloomberg the other day, I met Tom Borelli, one of two guys who manage the Free Enterprise Action Fund.

I was kinda surprised by their management style — they are the “anti-sociably responsible” fund — challenging corporate management that accept Global Warming as real. Sort of odd, given that alterantive energies and clean technologies are poised to be a huge growth industry for the next century.

Given my curiousity and perplexment by this, I did some homework. I found out some interesting things:

- The fund is tiny, managing only 6 million dollars after 1 year; (insufficient to generate  fees to pay salary for two fund managers)

- They own 390 individual stocks, a high number, given execution costs and slippage; 

- Neither manager has any experience running assets, but instead were lobbyists;

This raises some question right away: Why are managers with no experience running a fund? What do they actually do for a living? Here’s their backgrounds:

- Tom Borelli was a former tobacco company consultant;

- Steve Milloy was a paid Exxon Mobil consultant, challenging scientific findings of global warming. He was on the payroll when he established junkscience.com, which attempts to discredit via disinformation established scientific findings of global climate change.

The whole situation seems a bit off . . . to quote a friend, they are more like a "lobbying organization masquerading as an asset-management comp."

Odd. No wonder they barely have 5 Million after a year — sounds  like a money loser . . .

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UPDATE: May 6, 2006 9:49am

Slate’s Dan Gross has the specifics about the fund’s performance:

"Judging by the early returns, these free-marketers are failing the test of the marketplace. The fund has attracted a paltry $5.2 million in assets as of March 31. Returns have lagged the S&P 500 badly. In its first 10 months in business, the fund returned 2.32 percent while the S&P 500 rose 4.72 percent…

FEAF’s managers also don’t appear to be very interested in making money. Assembling a portfolio of 392 teeny positions (111 shares of Federal Express, 60 shares of Tiffany, etc.) is an incredibly inefficient and costly way of trying to mimic the S&P 500. Asset managers get paid based on the assets they manage. At FEAF, the Adviser (Milloy plus Borelli) receives a fee equal to 1.25 percent of assets. Five million dollars in assets throws off about $62,000 in fees annually, which is nowhere near enough to pay the salary of a professional money manager.

Page 17 of the annual report shows that the fund incurred total expenses of $302,117, a whopping 6 percent of assets. But the prospectus promises that fees won’t eat up more than 2 percent of total assets each year. And so in 2005, the adviser (i.e., Borelli and Milloy) waived his entire $44,727 management fee. What’s more, the adviser reimbursed some $185,616 in trading, administrative, and legal expenses to the fund. If the fund’s assets rise sharply in the next few years, the adviser can theoretically recoup these waived payments and reimbursements. But in the short term, it looks like Borelli and Milloy are essentially paying the fund for the privilege of using it as a platform to broadcast their views on corporate governance, global warming, and a host of other issues."

Sheesh! Thats not a fund — its a thinly disguised lobbying effort. Regardless of your political affiliation, investors are strongly advised to steer clear.

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Sources:
Mr. Immelt, Explain Yourself, Fund Says      
Amity Shlaes
April 5 2006
http://www.bloomberg.com/apps/news?pid=10000039&
sid=af2YTlE9STiM&refer=columnist_shlaes

Free Enterprise Action Fund            
http://www.freeenterpriseactionfund.com/index.html

Analysis: Free Enterprise Action Fund                  
Center for Media & Democracy                           http://www.sourcewatch.org/index.php?title=Free_Enterprise_Action_Fund

Category: Corporate Management, Investing, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Free Enterprise Action Fund ?”

  1. Sir Mixalot says:

    yo B,

    Elephant in the room is GDP at 4.8%.

    Shit is whack yo’.

    So much for all the bears.

  2. Stu says:

    $6 Million Dollars too big.

  3. Brian says:

    Sounds like some sort of crony makework scheme. Help my pals out here by “investing” in their “fund” and I’ll do something for you.

    Isn’t there some sort of ice cream company out there that is the anti-Ben and Jerry’s and offers rightwing favorites such as “Patriot Vanilla” and the like? (Psst: don’t tell them BJ’s is owned by Unilever).

  4. TimW says:

    Global-warming deniers running an investment fund based on their backwards ideology?

    The guy founded “junkscience.com?”

    Wow… I’m at a loss for words. Whoever invests with these yahoos are complete idiots.

  5. B says:

    I am convinced of one thing that this post supports. The entire world leadership is on the take. Period. And Washington is one of the worst. The amount of money changing hands in Washington is absolutely unreal.

    You know, along those same lines I saw a few weeks ago that Iran got their first nuclear reactor from the US during the times of the Shah. Huh? And we all know that we were pumping financial and military support into Iraq when Saddam was dropping chemical weapons on the Iranians. Oh, and Bin Laden was once supplied weapons by the CIA until he was no longer useful. We spy on our own citizens in the name of the Patriot Act.

    Now we have these two stooges running some type of Fund of the Idiots that looks more like some crooked Washington scheme. Can someone please tell me WTF is going on in Washington? My God I want another political party. Or maybe ten.

  6. paul says:

    The Vice Fund (VICEX) is a bit gimmicky, but at last it has a thesis – that alcohol, tobaco, gambling and defense contractors tend to be recession proof. But this Action Fund is too ideological to make sense as an investment vehicle.

    If they want to make some inroads, the model of Calvert might be better – get large positions in companies and use the weight to force them to deal with issues. In that sense, the Action fund is not politically incorrect (a title the Vice Fund claims) but is more Socially Irresponsible investing. Not exactly a great way to attract $.

  7. royce says:

    Sir Mixalot:

    Didn’t Barry predict high GDP for the first quarter and a stock rally to match at the end of last year? The bearish call came for later in ’06, if I remember correctly.

  8. TimW says:

    More…

    “From inception on March 1 of last year through Dec. 31, Free Enterprise Action returned 2.32 percent; the S&P 500 returned 4.72 percent. That’s ugly.”

    “The fund has about $6m (£4m) under management at the moment but claims to be growing fast” and “is supported by a network of right-wing think-tanks including the Heritage Foundation and the Cato Institute.”

    Oh how nice… right-wing welfare!

  9. JoshK says:

    Al Gore is also trying to run money for a private fund I think. Why not…

    And global warming must be true, I saw experts like Al and George Clooney on the cover of Vanity Fair discussing. Or global cooling? I forgot which.

    Now that we have such expertise in predicting the weather 100 years out, I wish they could get better at predicting the next day’s weather. I overdressed and was hot on the train.

  10. royce says:

    Dress in layers.

  11. Alaskan Pete says:

    Just more GOP shills. I’m an environmental engineer and I see all kinds of bullshit organizations that claim to be some research-based counter to conventional wisdom in environmental issues. Without fail, they are all run by K-Street style GOP wanks with zero credibility in the science community. That the media even gives these clowns the time of day is a joke. The common thread is shoddy scholarship, partisan money backing, and reputation within the peer reviewed research community as a laughing stock, shameless bunch of spin meister shills. Pay them some money and they will claim the sky is green, and the moon is made of cheese, complete with “scientific studies” that the mean ol “MSM” ignores because its a liberal conspiracy run by “Hollywood Jews”. Greedy little rat bastards. They’d steal grandma’s pension check given the chance.

  12. B says:

    “They’d steal grandma’s pension check given the chance.”

    Most grandmas don’t have a pension. They only have Social Security. What do you think those “greedy little rat bastards” are trying to do with SS? I’m oddly feeling some kinship with Ted Kacyzinski……….Not really but it’s funny.

  13. Lord says:

    Looks like they have some selling to do among ‘true believers’. Perhaps they should market to some socially conservative churches as they have many gullibles available, or better yet just become a charity so they don’t have to worry about returns.

  14. Frank Rizzo says:

    “Now that we have such expertise in predicting the weather 100 years out, I wish they could get better at predicting the next day’s weather. I overdressed and was hot on the train.”

    You may want to read up on current global warming science at the National Academy of Science website:
    http://tinyurl.com/r2gne

    If you are not familiar with the National Academy of Science, they are possibly the most neutral and respected source you could go to. And next time, dress in layers!

  15. Alex Khenkin says:

    Wow, these guys must be real pros (or something)! How on Earth can they justify holding positions like 27 shares of LYV at under $20 per share?! The transaction costs alone on this position will eat them alive. Did they have some “investment professional” spend a few hours at whatever hourly rate these people command recearching this company to plunk down a few hundred bucks, or they just threw darts at the screen? How do these people get other’s money to manage? Better not ask.
    Small Investor Chronicles

  16. JoshK says:

    “You may want to read up on current global warming science at the National Academy of Science website…”

    Look at the section on that web site re:uncertainty of climate change. But also, use your common sense. There are so many factors in analyzing the climate. The sun itself varies in the amount of heat it produces. Most scientists believe that there are periodic ice ages every 10k-15k years or so; by that reasoning we are due for one soon.

    It is hubris to claiming to be able to predict the weather out a hundred or more years into the future. This has the sound of religion more than real science.

    Anyways, the way we’re going, we’re more likely to have an Iranian nuclear winter than anything else.

  17. angela says:

    Not just anti social responsibility, but anti responsibility. Just drifting throuugh the stock listings and saying “wow that’s cool!” Everything looks good. Inexperienced investors do that.

    But their purpose is not to make money unless by good luck they hook some gullible rightists, nothing like ripping off the ignorant, it’s to go on TV and spout rightwing stuff.

  18. RW says:

    Angela’s nailed it I think, it’s another wrinkle in the K-Street project: a PR outfit disguised as a fund so the ‘officers’ can be invited to promote the party line on financial news outlets.

    Barry was getting some (good natured) kidding on the square about losing legitimacy when he appeared with Laffer on Kudlow’s show but imagine being a legitimate financial officer invited to a show and, upon entering the studio, discovering that someone like Borelli or Milloy was included in the same segment. What would you do?

  19. Frank Rizzo says:

    ” But also, use your common sense. There are so many factors in analyzing the climate. The sun itself varies in the amount of heat it produces. Most scientists believe that there are periodic ice ages every 10k-15k years or so; by that reasoning we are due for one soon.”

    I’m not a climatologist, and therefore would rather not use my idle reasoning, and therefore would prefer to rely on the expertise of scientists at NAS. And given their current knowledge – which does indeed factor in the effects from the sun and longer variations – it seems that reducing greenhouse gas emissions would be a good idea.

    Remember, it’s not about predicting the weather in 100 years. After all, we don’t know what the weather will be this coming December, but we are pretty good at predicting what the climate will be like – cold!

  20. dsquared says:

    [a PR outfit disguised as a fund]

    I for one would be very happy indeed to see a couple of lobbyists get themselves into a situation where they had to justify everything they said and did to a sceptical SEC investor. Particularly if they did so without realising what they had walked into.