The fund's co-manager Robert Arnott, First Quadrant's managing partner and chief executive officer, played a large role in crafting that policy. In 1993, a widely publicized article in the Journal of Portfolio Management that he co-authored concluded that only a small minority of actively managed mutual funds beat the performance of the S&P 500 Index on an after-tax basis. His more recent studies, published in 2000 and 2001, reached similar conclusions.
With assets standing at just $8 million for the nearly two-year-old fund, the challenge now is getting that message out to the public. To help keep the tab for such a small offering in check, net annual fund operating expenses borne by shareholders are capped at 1% through March 1, 2003. While there are no immediate plans to extend the cap, Peter Lebovitz, president and CEO of The Managers Funds (which sponsors First Quadrant Tax-Managed Equity) says he "would be surprised" if the fund's board of directors does not grant such an extension.