The Case of the Disappearing Fund Manager

Charles de Vaulx left First Eagle suddenly. He has re-emerged at a firm founded by four former colleagues.
By Simon Constable ,

The bizarre saga over the

disappearance of a star mutual fund manager

early last year and the

subsequent walkout by four of his former colleagues

seems to be at an end.

Charles De Vaulx, former chief investment officer of

First Eagle

funds, and lead manager of the $21.7 billion

Global Fund

(SGENX) - Get Report

, $9.1 billion

Overseas

(SGOVX) - Get Report

, and the $1.2 billion

Gold

(SGGDX) - Get Report

mysteriously vanished from his employer last March.

At the time, De Vaulx went to ground while First Eagle remained tightlipped about the situation.

Then last September, four of his former colleagues -- Charles "Chuck" de Lardemelle, Simon Fenwick, Michael Malafronte and Lawrence Borsanyi -- all quit First Eagle too, just days after TA Associates acquired a minority stake in First Eagle's parent company

Arnold & S. Bleichroeder Holdings

.

The foursome, who constituted the core part of the investment team, won't exactly say why they left, but it appears to have been a dispute over compensation.

Now De Vaulx has turned up, this time with his old buddies as a partner and portfolio manager at a firm called

International Value Advisors

.

The four others, Lardemelle, Fenwick, Malafronte and Borsanyi, formed the new firm on Feb. 1, and have now amassed assets under management of $275 million.

So far, the assets are from institutional investors and high-net-worth individuals, although there is the possibility that in the future the firm does make a mutual fund offering.

"We don't want to close the door to anything, but right now we have enough on our plate," says Lardemelle, now the firm's chief investment officer. "We'll see where the demand comes from."

He says that although the company is set up as a hedge fund for legal reasons, the investment side of the business, like the stock picking, will have a mutual fund philosophy. No shorting and no leverage, he says.

Investing will primarily be made in equities, with some allocation to high yield debt and commodities depending on market conditions, the firm says.

Currently, the firm's assets are split into two pools: an overseas fund ($100 million) and a global one ($175 million). The former invests only outside the U.S., while the latter invests anywhere.

Such a setup would seem to put IVA on course to collide with First Eagle's similarly named overseas and global funds.

De Vaulx was unavailable to make a comment in time for publication, and Jean Marie Eveillard, the quintet's former boss -- who still heads First Eagle -- declined to comment on the matter.

Investors might be concerned over a repeat of last year's walkout by the team of money managers, but Lardemelle says they shouldn't because of the firm's ownership structure. The five partners own 100% of International Value Advisors, which he says gives them "total control."

In terms of current strategy, De Lardemelle says Japanese stocks look appealing, with wireless firm

NTT DoCoMo

(DCM)

looking particularly so. The stock is trading at between six and seven times projected earnings before interest and taxes, has zero net debt and has steady cash flow, he says.

He also likes

Nissin Healthcare

which trades at six times earnings excluding cash and

Milbon

, which sells for 10 times earnings excluding cash, he says.

As for the U.S. market, he sees a steepening slowdown as the credit crunch starts to bite with consumers. Specifically, he points to the inability of consumers to buy houses, cars or consumer durable goods such as washing machines with zero down payment. That will hurt overall spending he says.

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