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Resolute may close shop over disclosure rule

Privacy seen as key to manager's success

Tom Stanley is taking a stand against busybodies who want to know what he's buying and selling.

The man considered to be one of Canada's best money managers is threatening to shut down his flagship Resolute Growth Fund in a tussle with regulators over how much he has to disclose.

The crux of the dispute is a new rule that forces all mutual funds in Canada to reveal their 25 largest holdings every quarter. Previously, funds were required to disclose only once every six months.

Mr. Stanley applied to the Ontario Securities Commission for an exemption, but hasn't yet received one, so he has put investors on notice that he may wind up Resolute Growth, the best-performing mutual fund in Canada over the past 10 years. A $10,000 investment in the fund when it began in December, 1993, is worth about $200,000 today, and Mr. Stanley believes that privacy has helped his success.

"Now, with [the disclosure rule] it will be more difficult for us to continue the investment process that has served us so well," Mr. Stanley told unitholders in a letter obtained by The Globe. "I do not believe there is a place any longer for a public mutual fund here in Ontario with our unconventional investment style and unorthodox view of risk."

Mr. Stanley's $400-million fund is highly concentrated in a small number of investments; as of the end of June, it contained only 14 stocks. So the new rule, in effect, forces him to disclose his entire portfolio every quarter.

Because a number of the companies are small and their stocks are not very liquid, it can take months for the fund to build a sizable stake. Mr. Stanley fears that more frequent disclosure will short-circuit the process by letting others know what he's buying while he's still trying to buy it, or could send prices of the stocks plummeting if he discloses that he had been selling.

"If competitors or arbitragers were able to access the fund's quarterly portfolio information, they would effectively be able to 'front-run' the fund, to the potential detriment of the fund and its unitholders," the firm said in regulatory filings this spring.

His letter to unitholders says he would prefer to wind up the fund "before year-end," but he will delay doing so for fear that quickly selling the fund's holdings would hurt its value, and "continuing to manage the fund a bit longer allows us time for a last-minute regulatory reprieve."

Mr. Stanley's complaint got a sympathetic ear from analyst Dan Hallett, president of Dan Hallett & Associates Inc., an investment research firm. "I can see where he would have an issue but I'm surprised it would drive him to consider closing the fund," he said. "If I was going to pick something I would have wanted in terms of improved disclosure, I'm not sure that [quarterly holdings] would be high on my list."

Many larger fund companies have adopted the new policy without complaint because they voluntarily give top holdings on a monthly basis. "We've been used to doing that for a long time," said Peter Anderson, president and chief executive officer of CI Fund Management Inc.'s mutual fund unit.

In June, Resolute Growth unitholders voted 99 per cent in favour of giving Mr. Stanley permission to apply for an OSC exemption.

The OSC was unavailable to comment.

Resolute Growth Fund

UTS Energy: 22.0%

Deer Creek Energy: 14.3%

International Uranium: 11.8%

Cameco: 9.4%

Canadian Natural Resources: 9.2%

UEX Corp: 8.4%.

Canadian Oil Sands: 6.2%

Suncor Energy: 4.5%

Genesis Land Development: 3.3%

Blue Mountain Energy: 3.2%

Other net assets: 2.9%

Energy Metals*: 1.5%

JNR Resources: 1.5%

Altius Minerals: 1.3%

Dejour Enterprises: 0.4%

(as of June 30, 2005) *Shares and warrants

© 2007 The Globe and Mail. All rights reserved.

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