SOURCE: Mirzam Group

Mirzam Group

June 24, 2009 12:52 ET

Mirzam Funds Manager Advises Investor Vigilance on Executive Compensation

TEQUESTA, FL--(Marketwire - June 24, 2009) - As the Mirzam Capital Appreciation Fund (NASDAQ: MIRZX) approaches its second anniversary, its managers caution that while improvements in global markets and a slowing of corporate declines have provided an encouraging breather for investors, they believe overly generous executive compensation continues to erode shareholder value at many public companies. As such, the fund's investment strategy follows a unique approach among mutual funds: it's a value fund that avoids investing in companies that it perceives erode shareholder gains because of excessive executive and employee stock-based compensation.

The $5.1 million asset fund invests only in companies its managers believe have world-class financial performance and a commitment to operating in the best interests of all shareholders.

"Most investors would be amazed at the number of well-known companies that support and implement executive compensation plans designed to channel financial and market gains to a handful of insiders," explains Clifford Morris, Mirzam's founder and managing director. "Improving economic conditions may present an opportunity for investors to participate in a long-term market upturn after stocks have been hammered for the past two years, but gains could be far less meaningful if they accrue to management and insiders instead of shareholders."

Mirzam's strategy is to make long-term investments in well-run companies that use their free cash flow to grow and increase the value of their businesses, or distribute that cash to shareholders as dividends. Albert Meyer, the fund's lead manager and recognized expert on corporate governance and compensation, says there is a direct correlation between companies having responsible executive compensation and which generate consistent long-term value and out-perform the market. Meyer is president of Bastiat Capital, which is sub-advisor to the Capital Appreciation Fund.

"Appropriate compensation doesn't guarantee outstanding long-term corporate performance, however, it is virtually assured that companies with self-serving compensation structures generally don't generate maximum shareholder value," he explains. Meyer conducts extensive due diligence before selecting a stock for the fund's portfolio. Once a holding is selected, the fund's strategy is to hold a stock for years, unless significant changes in the company's business model take place. In 2008, the fund's portfolio turnover was 3%.

Executive stock options are the biggest red flag, says Meyer. He cites the collapse of corporations like Lehman Brothers and Countrywide in 2008 as examples of how executives profit even as they run their companies into the ground. For instance, from 2003 to 2007, Meyer notes Lehman CEO Richard Fuld cashed in $184.6 million of stock options, which Meyer believes contributed significantly to the company's ultimate decline. He says many other examples are less obvious, and Meyer's picks of stocks to shun read like a laundry list of companies many view as world-class performers.

"Many of these companies generate vast amounts of income and cash flow, but when you really dig down and analyze their accounting practices, you find they're diluting out shareholders by issuing large amounts of stock options to executives and employees," explains Meyer. "These cash flows are applied to stock repurchases to mop up option dilution and should be distinguished from conventional repurchases. It's difficult and time consuming to conduct this investing due diligence, but that is exactly why we believe our fund offers tremendous value to our shareholders."

Companies the Capital Appreciation Fund owns include GlaxoSmithKline, Johnson & Johnson, Nestle, StatOil, Syngenta, Telefonica, Emerson Electric and Southern Copper. Common to these diversified holdings are what Mirzam considers strong performance generating significant free cash flow, with fair yet conservative executive compensation policies, and a focus on generating long-term value for shareholders, says Meyer.

"You don't need outlandish compensation to attract top talent," he concluded. "In fact, it's just the opposite, and the outstanding long-term performance of many world-class companies has proven that to be the case. Excessive, self-serving compensation structures tend to attract executives who are more focused on ways to build their personal wealth than on ways to build the company's value.

"The litany of corporate debacles -- Enron, Tyco, WorldCom, Lehman Brothers, and Countrywide to name just a few -- were all viewed by investors as unassailable giants. These are the most obvious examples because they collapsed. There are hundreds of perceived world-class companies, still very much in business, that in our opinion drain away shareholder value on a daily basis. We work very hard to ensure those companies never have a place in our portfolio."

About the Fund

Founded in 2007, the Mirzam Capital Appreciation Fund (NASDAQ: MIRZX) invests in equities that generate long-term growth with strong free cash flow and trade at reasonable prices or prices that are below the companies' intrinsic values. Find out more at the company's website:

You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund's prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund's prospectus at Past performance is no guarantee of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.

Distributed by Unified Financial Securities, Inc., 2960 North Meridian Street, Suite 300, Indianapolis, IN 46208. (Member FINRA)

Contact Information

  • Contact:
    Tad Gage
    Capital Insight Partners
    Clifford Morris
    The Mirzam Fund

    Media Contact:
    Cindy Martin
    Capital Insight Partners