Resolute bucks industry trend

(June 23, 2005) At a time when big fund companies are lowering their management fees, one expects the smaller players would have to follow suit. But that’s not the case at one small-cap fund.

Tom Stanley, manager of Toronto-based Resolute Growth Fund, actually asked his unitholders earlier this week for permission to raise management fees and expenses for the fund. Surprisingly, Resolute’s unitholders didn’t even put up a fight. Over 96% supported the increase, with about two-thirds of unitholders voting.

The fee increase wasn’t the only potentially contentious matter put to unitholders at that meeting. Stanley also asked for relief from certain provisions in new regulatory disclosure guidelines, set out in National Instrument 81-106.

Specifically, he wanted an exemption from a provision which would have forced him to not only list his top 25 portfolio holdings, but to report them more often.

Resolute’s management circular argues that the new requirements would jeopardize the fund’s future performance since it is concentrated in a relatively small number of stocks that have low liquidity.

The new requirement would force it to disclose its entire holdings on a quarterly basis. As a result, the fund could be vulnerable to competitors or arbitragers. Apparently, the unitholders agree, with 99.58% voting in favour of Stanley’s request.

The strong support for Stanley’s requests was no doubt bolstered by his funds impressive performance. In the past year alone the fund has returned an astounding 71% — although Stanley hates to talk about short term growth. However, the fund’s 10-year return is an equally impressive 27%.

Requests for disclosure relief are not unusual. Some large funds have been granted an exemption to automatically send their unitholders an annual report. Instead, reports are sent only to unitholders who request them. And as the Investment Funds Institute of Canada’s senior counsel, Ralf Hensel points out, “most people don’t read them anyway.”

Although Resolute didn’t have to ask for its unitholder approval to seek relief, Stanley felt it would improve his position when he takes his case to the regulators.

Industry insiders believe Stanley already has a pretty good case. But Hensel says the likelihood of Stanley winning relief will depend on the requirement and the possible precedent it might set. “If they waive it for one, they may have to waive it for all.”

Eric Pelletier, spokesperson for the Ontario Securities Commission, adds that the process could face additional delays if Stanley’s request does set a precedent, pointing out that the rule just came into effect.

While Stanley says he was overwhelmed by the support, after the vote he told those in attendance he will ask for an exemption from the disclosure requirements but won’t raise his fees at this time.

“I don’t feel like it,” he quipped, when asked why he opted not to raise fees. “I try to run this fund in a responsible way and I don’t feel there is a need to do it now.” He added he simply wanted the flexibility to charge more fees in the future.

Filed by Mark Brown, Advisor.ca,

(06/25/05)