Longleaf fund seeks group cash to buy stocks

Muralikumar Anantharaman

BOSTON, Dec 12 (Reuters) - Longleaf Partners Fund, which in November appealed to its shareholders for $2 billion to invest in a few beaten-down stocks, said on Wednesday it is turning to owners of other funds in the group for fresh contributions.

The fund, the flagship of deep-value stock investor Mason Hawkins, said in a letter on the Longleaf Web site that the move to tap shareholders of the International and Small-Cap funds for cash was due to the availability of new investment opportunities.

Co-managers Hawkins and Staley Cates of the $11.4 billion Longleaf Partners Fund, which was closed to new investors in 2004, said last month the $2 billion would enable them to buy stocks that traded at 60 percent below intrinsic values.

If existing fund shareholders did not supply the money, shareholders of other funds in the group would be tapped, Hawkins and Cates said. If that did not raise the desired amount, the fund would be temporarily reopened to new investors, they said.

"Our partners have responded with enthusiasm by sending cash and making additional commitments," Hawkins and Cates, said in a letter on Wednesday. They did not say how much the fund raised from its shareholders.

"Additional compelling opportunities remain," said the pair who were named by research firm Morningstar as top fund managers for U.S. stocks in 2006. "Shareholders should benefit from adding these to the portfolio. We are, therefore, broadening the call for new capital to the entire Longleaf shareholder base," they said.

The managers reiterated their intention to temporarily reopen the fund to external investors if the fund still did not get enough to "satiate the investment opportunities".

The fund's approach won praise from some analysts.

"Too often, fund companies don't provide that kind of guidance to investors. It is also great the way in which they are trying to give the opportunity to their shareholders first," said Russel Kinnel, director of mutual fund research at Morningstar.

The fund is managed by Memphis-based Southeastern Asset Management Inc, of which Hawkins is chairman and chief executive.

It has 23 stocks, and as of end-September held $1.2 billion worth of shares in personal computer maker Dell Inc (DELL.O) and $659 million of online auctioneer eBay Inc (EBAY.O), among others.

The fund has underperformed in the short term, returning just 2.71 percent in 2007 through Tuesday's close against a 6.1 percent return for the S&P 500 index, according to Lipper data. But over a 15-year period, it has returned 14.01 percent a year annualized against 10.60 percent for the S&P index, data show.

Longleaf's $4 billion International Fund is open to new investors but its $3.7 billion Small Cap fund is closed.

"Longleaf not only closes its funds when they are too big but they also close them when they can't find anything to buy. Most fund companies do not do that because they would rather take your money even if you are buying at the wrong time," said Morningstar's Kinnel.