H&Q to Close IPO Fund to New Investors

The fund has proved to be as popular as many of the stocks it tries to buy.
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Soon, shares of

Hambrecht & Quist's

(HQ)

IPO mutual fund will be as hard to get as, well, a hot IPO.

H&Q announced today that its

IPO & Emerging Company

fund will close to new investors Dec. 30, a little more than a month after its launch.

Previously, H&Q said it would consider closing the fund when assets reached $300 million; they topped $330 million as of Nov. 29.

The closing is one of the quickest in recent memory -- no domestic stock fund launched this year or last is currently closed, according to fund-tracker

Morningstar

.

"I had no idea we'd raise this much assets so quickly," says Dave Krimm, H&Q's top marketing officer. The fund could reach $500 million before it closes, he says, but that asset level wouldn't be a problem due to a steady stream of IPOs.

The fund, H&Q's first open-end fund, is not necessarily a 100% IPO investment. Its prospectus only requires 65% of the fund be invested in companies during the 18 months following their IPOs. The job of picking the stocks is subcontracted out to San Francisco-based

Symphony Asset Management

, which employs a quantitative strategy.

Launched on the heels of a string of notable and successful IPOs such as

Sycamore Networks

(SCMR)

,

NaviSite

(NAVI) - Get Report

, and

World Wrestling Federation

(WWFE)

, the fund has been a barometer for investor interest in IPO shares.

During a five-week subscription period leading up to the fund's Oct. 28 start, investors could reserve $10 shares through full-commission H&Q brokers or

Charles Schwab's

(SCH)

no-load

OneSource

fund supermarket. By the time the subscription period ended, the fund raised a whopping $184 million, far exceeding expectations.

The fund's performance has had a hand in boosting assets. According to H&Q's Web site, the fund's net asset value on Nov. 30 was $12.38, up 23.8% from its $10 share price at launch.

Beyond excellent timing, the fund's success at gathering assets is also a testament to Schwab's marketing muscle. H&Q paid Schwab to give the fund priority on its Web site, and Schwab raised $158 million for the fund during the subscription period. Since then, Schwab's total sales have reached $280 million, according to a Schwab spokesman.

Still, the fund's focus on IPOs was clearly a compelling marketing hook. Schwab has had similar promotional agreements with high-profile fund companies such as

Janus

,

Warburg-Pincus

and

Stein Roe

in the past, and the IPO fund easily exceeded the previous record.

When investors pile into a fund and force its closure, fund marketers predictably strike while the iron is hot. Expect more funds from H&Q, though not necessarily an IPO fund.

"You probably will see a new H&Q fund in the first or second quarter of next year," says Krimm, H&Q's top fund marketer.

Chase Manhattan Bank

(CMB)

(which agreed to buy H&Q on Sept. 28) "is excited about launching more funds. This fund could re-open someday, but we won't create a fund similar to this one."

But Andrew Guillette, a consultant with Boston-based fund consultancy

Cerulli Associates

, isn't convinced the fund's doors will stay closed. "Once they close the fund and make sure they have their sea legs with this new concept, they might just open it again," he says.

In the meantime, IPO-minded investors should remember there's another IPO fund that's open and has a longer track record than H&Q's. The

(IPOSX)

IPO Plus Aftermarket fund, managed by IPO-researcher

Renaissance Capital

of Greenwich, Conn., was up 78.2% year-to-date and more than 100% for the past year as of Nov. 30. The fund, started in December 1997 and added to Schwab's OneSource earlier this year, has just over $21 million in assets.