MFWire reported last Friday that Fairholme Capital [profile] has reopened to investors its Fairholme Fund to new investors. The SEC Filing for the reopening can be found here.

The move also caught the attention of other publications like InvestmentNews, and the Wall Street Journal.

Bruce Berkowitz first stunned investors in Januarywhen he partially closed the fund, and then added big holdings of both GSEs Fannie Mae and Freddie Mac, as well as jumping into the legal fight over the terms of the government's bailout of the two entities.

Now that the fund is back in the game, the question is whether the fund is ready again for prime time.

Kevin McDevitt, a senior fund analyst at Morningstar, says the jury is out.

"It's somewhat surprising, somewhat confusing, that they would re-open the fund now," he told MFWire in an interview.

In an analyst report he wrote in March, during which he gave Fairholme a Silver rating, McDevitt noted that the fund had previously suffered $10 billion of outflows in 2011 and 2012. The fund has seen another $650 million outflows this year through July. However, he says, the "pace of outflows slowed down tremendously."

McDevitt said that he has not recently spoken to Berkowitz, so he can't speak directly to what the fund manager is thinking, but McDevitt theorized that one possible reason for the re-opening was to bring in new money to counteract the continuing outflows.

As flows continue, Berkowitz has to continue to sell assets to meet redemptions, and that puts a crimp in his investing style, diluting holdings that he would rather not weaken, according to McDevitt.

The challenge is that Berkowitz's investing style is notoriously heavy in concentration, with holdings in 11 companies as of March. This strategy requires investors who can really appreciate what Berkowitz is doing, according to the analyst. Since the fund is distributed largely via platforms, it's relatively easy for jittery investors to jump out when things get volatile, McDevitt says.

Consequently, Berkowitz and his colleagues have ramped up their efforts to reach out to investors to explain his thinking, including case studies drilling down on some of his big holdings.

"His hope is to try to attract shareholders who are likeminded and who will stick with him," says McDevitt. 

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