As a manager to hedge funds, TFS Capital
is versed in risk. Now, with a recently launched mutual fund, it's betting its portfolio managers can beat the
Russell 2000 Index -- or lose out on fees altogether.
Richmond, Virginia-based TFS was founded in 1997 and has about $60 million in assets under management. The TFS Small Cap Fund
was priced on March 7, and the firm says its new product will give managers more incentive to serve shareholder needs than any other mutual fund on the market.
Fees for the TFS Small Cap Fund are fixed at 1.25% for the first year of its existence. After that, provided asset levels stay consistent, fees will fall to 0% if the fund
fails to beat the Russell over a trailing 12-month period -- that is, even if it matches the market.
If performance exceeds the Russell by 5% or more, however, fees could climb to as much as 2.5%. Still, TFS says its fulcrum system brings the interests of managers and investors into "unprecedented" alignment.
An estimated 200 mutual funds, among them funds managed by Fidelity and Vanguard, already employ fulcrum fees. However, said TFS spokesperson Richard Gates, "Their management fee doesn't fluctuate as much."
In addition to its work with hedge funds, TFS manages one other mutual fund, the TFS Market Neutral Fund
. Gates said the company has no immediate plans to launch other fulcrum fee products. Looking ahead, he said TFS's gauge for the new Small Cap Fund is simple and focused: "We want to beat the Russell."
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