Ask Chase If He's A `Passive' InvestorJeffrey M. Laderman
Short Hills, N.J., is the kind of place to which Wall Street potentates retire for the night. But now, it's a place the smart money watches during the day as well. Mutual-fund manager Michael F. Price, who used a 6.1% stake in Chase Manhattan Corp. to prod it into a merger with Chemical Banking Corp., works out of a Short Hills office. Price scored a $315 million unrealized gain on Chase and $55 million on Chemical--and the Street wants to know the next target in Price's sights.
Price laughs at the idea of a hit list and doesn't see himself as a corporate raider. "We don't come to work looking for the next target," says Price. "We come to work looking to buy undervalued stocks. Sure, we were active in Chase, but there's over 300 companies here, and they're passive investments."
MAJOR LEAGUES. Price, 44, is one successful guy. The Mutual Series funds--Shares, Qualified, Beacon, and Discovery--total $13 billion in assets. He makes money through traditional equity investing but also, on occasion, with illiquid investments that most funds shun. The funds plan to buy a 22.5% stake in Canary Wharf, the once bankrupt London office complex. Bankers say that will cost the funds $150 million. Co-investors are big-leaguers: Laurence Tisch, Edmond Safra, Paul Reichmann, and Saudi Prince Alwaleed bin Talal bin Abdulaziz Alsaud.
Price has been jousting with managers and boards for years. Since May, he has been trying to force a sale of Bay View Capital Corp., a San Francisco thrift. Last year, he considered running an opposition slate of directors for the board of Michigan National Corp.; management relented and agreed to sell to another bank. But pressuring a second-tier regional bank is one thing; challenging the "Rockefeller bank" is quite another.
Now, his once small band of followers has become a crowd, generating frequent rumors. One recently had Price, whose funds held 1.7 million Chrysler Corp. shares at the end of June, buying more to join Kirk Kerkorian's campaign against the auto maker. Price says he has unloaded Chrysler because "it's no longer cheap" and now believes Volvo is the world's cheapest auto stock.
Price's fund group is as unusual as its manager. Mutual Shares, Qualified, and Beacon are near-clones of one another. There are no bond, money-market, or international funds--though the newest fund, $1.2 billion Mutual Discovery, has 40% of its assets in Europe. Price says many European companies sell for half the price-earnings ratio they would get in the U.S.
A major portion of each fund is devoted to "value" investing, buying cheap stocks selling for a fraction of their true worth. Indeed, it's the ability to identify cheap stocks that lies at the heart of Price's success. Of course, investors can find that elsewhere.
But Price also blends in bankruptcy investing and risk arbitrage, things rarely found in mutual funds. He learned the bankruptcy angle--where the investor as creditor takes an active role in molding a deal--from Max Heine, who founded Mutual Shares in 1949 and was active until his death in 1988. Price's funds have some $1 billion in bankruptcies. Risk arbitrage, investing in mergers and takeovers, accounts for $700 million.
"WEIRD MIX." Bankruptcy and risk arbitrage have cycles of their own that don't correlate with the market. As a result, adding these investment styles to the funds gives them a low-risk profile compared with the Standard & Poor's 500-stock index. The largest fund, $5.1 billion Mutual Shares, is only about 70% as volatile as the market. "It's a weird mix," says Ken Gregory, editor of the No-Load Fund Analyst, "but over time, it generates excellent returns."
Price's funds have lagged the S&P for the first nine months of 1995 (table). In part, that's because the funds have 20% in cash and have few high-octane tech stocks. But in 1994, when the average fund was down 1%, Price's funds had positive returns and beat the market. The funds have handily beaten the market averages over longer periods.
Price admits it's getting tougher to invest $13 billion. Cheap stocks are getting scarce. So are bankruptcies. That is why he's bullish on Europe and will soon open a London office. It's also an admission that sometimes you have to get out of the limelight of Short Hills.
MUTUAL SHARES' TOP HOLDINGS
U S West
DATA: MUTUAL SHARES
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