Baron Managers Get Caught in the Net --- Fund Team Finds Few Stocks Meet Its Criteria
You've just been given $200 million to invest, but with a catch. You can buy only Internet stocks. And you're expected to deliver big returns, while avoiding risks.</br></br>That's the opportunity -- and challenge -- facing mutual-fund manager Matthew Ervin, who finds himself on a recent day trying to pursuade his boss that he has found Net stocks that fit these seemingly contradictory criteria.</br></br>With feigned patience, he paces a sunlit conference room, explaining the history of computing: Computers have gotten progressively faster, but until recently, everything was slowed by the lack of bandwidth. Now that the pipes have opened up, a new era has dawned, and companies seizing that change would be great investments for his soon-to-be launched mutual fund, even at today's sky-high prices.</br></br>Morty Schaja, president of Baron Capital Group, disagrees with his fund manager. "I'm uncomfortable with the business," he says. "But if the valuation was 10 or 20 times less than it is now, I might be interested."</br></br>Too risky, too expensive. And so it goes as Mr. Ervin, 30 years old, and his co-manager, Mitchell Rubin, 34, try to identify stocks for one of the latest entries in the Internet-fund sweepstakes: Baron iOpportunity. At this point, late in the afternoon of Feb. 29, just 18 hours before the fund goes live, the managers have approvals to buy just 15 stocks, unless prices drop significantly. Yet they have a lot of cash to put to work -- $199,626,449.63 to be precise. That's the amount Baron, a highly respected boutique-fund family, has raised for the new portfolio.