Profits, Not Inflows, Prompt Longleaf Fund to Close Doors

Sales of stakes in three companies left the fund with too much cash.
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Longleaf Partners fund, flush with cash after selling stakes in three media-related companies, will close to new investors June 1.

Proceeds from the recent sale of

MediaOne Group

(UMG)

,

Seagram

(VO) - Get Report

and

News Corp.

(NWS) - Get Report

left the fund with too much cash -- more than 30% of its $5 billion, says Lee Harper, spokeswoman for

Southeastern Asset Management

in Memphis, Tenn.

Shares of all three companies had run-ups in April, and MediaOne agreed April 30 to be purchased by

AT&T

(T) - Get Report

.

Harper said the fund's managers, led by O. Mason Hawkins, felt those companies had reached their full valuations.

The rich price of the stock market, and of large-cap companies in particular, left the fund with few options for putting that money -- about $1.5 billion -- back to work, she says.

"We had sold a number of businesses that reached their full value during the first part of this year, and we've been finding very few businesses that meet our criteria to reinvest the proceeds in," Harper says.

The fund looks for companies that are priced at least 60% below what Longleaf believes to be their inherent value. With the current price-to-earnings of the

S&P 500

at 36.17, the market was offering up few of those kinds of companies.

Harper said new inflows into the fund this year -- about $300 million, or just 6% of assets -- were not a primary factor in deciding to close the fund. The fund has returned 24.9% year to date and ranks among the top 3% of funds in

Morningstar's

mid-cap blend category for 1999.

"Rather than take the chance that more cash would come in

due to performance, we thought it would protect existing shareholders to stop the inflows," says Harper. "And we still have plenty of cash to take advantage of those opportunities when they do come up."

Longleaf Partners fund has had an open-and-close history of late. After closing to new investors in September 1995, it reopened last October when assets were $3.1 billion. Now, new investors have until the close of business June 1 to open an account with the fund or be shut out.

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