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Sequoia Limits New Investors After Being ‘Inundated’ With Cash

Jan. 5 (Bloomberg) -- The Sequoia Fund Inc., having reopened to new investors in 2008 after being closed to outside money for 26 years, is once again limiting new cash.

Ruane Cunniff & Goldfarb Inc., the manager for the $4.9 billion fund, disclosed in a regulatory filing today that it will no longer sell Sequoia shares through financial advisers and intermediaries such as Charles Schwab Corp. It will continue to sell shares directly to investors.

The fund, started in 1970 by Richard Cunniff and the late Bill Ruane, a money management team that won a rare endorsement from billionaire Warren Buffett, reopened on the cusp of the financial crisis that plunged the U.S. economy into a recession. Having beaten the Standard & Poor’s 500 Index in 2008 and in two of the three ensuing years, Sequoia is now getting $20 million a day in net deposits, almost all of which is coming through financial intermediaries such as Schwab, according to Robert Goldfarb, Ruane Cunniff’s chairman and chief executive officer.

“We are just being inundated by cash,” Goldfarb said today in a telephone interview. “If we were going to curtail inflows, we had to go to the source.”

Most stock fund managers would be happy to have cash coming in these days. Investors pulled a net $131.6 billion from domestic U.S. stock funds last year, according to preliminary data compiled by the Investment Company Institute, a mutual fund trade association based in Washington.

‘Money Seeks It’

While many managers have had trouble beating their benchmarks because stocks have been moving in unison, Sequoia has been able to buck this trend by picking companies that outperform the market, according to Michael Lipper, head of Lipper Advisory Services Inc. in Summit, New Jersey. Sequoia’s largest holding, Valeant Pharmaceuticals International Inc., jumped 65 percent last year.

“This is a fund that marches to its own drummer and tends to do very well” when markets are unchanged or down, Lipper said in a telephone interview today, adding that his firm, which advises institutions on investing in mutual funds, has held Sequoia shares for years. “It has relatively good numbers, and therefore, money seeks it.”

Sequoia generated a 13.2 percent return last year, outperforming 99 percent of its peers as well as the 2.1 percent gain that the S&P 500 index recorded when dividends are included. The fund had a total return of 19.5 percent in 2010, a performance that led Chicago-based Morningstar Inc. to designate Goldfarb and his colleague David Poppe as its domestic stock fund managers of the year.

Cash Pile

When the fund reopened in May 2008, cash and short-term securities totaled about $266 million, or about 8 percent of its $3.3 billion in net assets reported for the first quarter of that year. The cash balances had climbed to more than $920 million by the end of last year’s third quarter, filings show, and exceeded 22 percent of Sequoia’s $4.1 billion in net assets at the time.

“Our preference would have been to keep the fund open,” Goldfarb said today. At the same time, he said, the firm “tries to be careful and disciplined in putting cash to work.”

Ruane, who died in 2005, became friends with Buffett when the two studied together under legendary value investor Benjamin Graham at Columbia University in 1951. When Buffett shut down his investment partnership in 1969 to concentrate on Berkshire Hathaway Inc., he recommended that his clients invest with Ruane.

Sequoia’s goal is to invest in a small number of businesses that Ruane Cunniff has studied intensively and then hold the stocks for years, even decades. The firm at one point had more than 30 percent of its assets invested in the billionaire’s Omaha, Nebraska-based holding company. Having pared this stake during 2010, Sequoia still had about 11 percent of net assets invested in Berkshire as of Sept. 30.

To contact the reporter on this story: Miles Weiss in Washington at

To contact the editor responsible for this story: Christian Baumgaertel at

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