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Lyrical Asset Charges Performance Fee Only When It Outperforms

By Amy Or Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Lyrical Asset Management is among a rare breed that charges hedge fund-like fees for a long-only fund. But unlike Lyrical's counterparts in the hedge world that charge a 2% management fee and take a 20% cut of any gains, Lyrical's management fee is 0.75% and it takes a 20% performance fee only when its gains exceed benchmarks such as the Standard & Poor's 500-stock index, or the Russell 1000 index. "We think it's a fair structure...and a respectful aligning of interests," said Lyrical co-founder Jeffrey Keswin. Keswin was co-founder and co-president of Greenlight Capital Inc. alongside famed short-seller and value investor David Einhorn. Keswin left Greenlight in 2002 and in 2004 founded Lyrical Partners, a multi-capability investment-management platform of which Lyrical Asset Management is part. "Fundamentally, we are betting on our ability to perform and, in fact, to outperform over time," he said. And outperform Lyrical has. Its $360 million U.S. Value Equity strategy gained a net 68.4% in 2009 and 22.3% in 2010, according to data provider eVestment, 49 percentage points above the S&P 500 for those two years. The fund declined by 1.2% last year when the S&P was up 2.1% including dividends, but it was up 13.2% in the first quarter compared with the S&P's 12.6% rally. Lyrical's strategy couldn't be simpler: Invest an equal amount in 35 large- and mid-capitalization stocks and hold them until they reach the target price Lyrical has set for each of them. Since the portfolio is very concentrated, the fund pays special attention to the quality of stocks it buys. "We only invest in tangible businesses that we can thoroughly analyze and understand," said Lyrical's other co-founder and managing partner, Andrew Wellington. "You won't find us owning Goldman Sachs [Group Inc.] (GS) or Bank of America [Corp.] (BAC), not because we think they are bad stocks, but because they are too opaque and complex to properly analyze." The portfolio consists of a variety of names in many sectors, including drug-store chain CVS Caremark Corp. (CVS), cable-system giant Comcast Corp. (CMCSA), computer maker Dell Inc. (DELL) and Goodyear Tire & Rubber co. (GT). In financial services, Lyrical holds insurer Aetna Inc. (AET) and Ameriprise Financial Inc. (AMP), believing the latter's asset-management business was underpriced by many who focused only on the insurance operations. Contrary to a market view that one has to trade often to take advantage of market volatility, Lyrical averages just five buys and five sells a year. Wellington, who ran a five-star mutual fund of Neuberger Berman Group LLC between 2002 and 2005, said his investment discipline is to remain unfazed by market volatility. "Short-term market movements are random. Our goal is maximize long-term performance, so we don't let the day-to-day fluctuations of the market distract us from that goal," he said. Last month, the fund got out of National Fuel Gas Co. (NFG) and added specialty-chemical company Celanese Corp. (CE) at less than $45 a share. Wellington said he expects Celanese's sales to grow faster than global gross domestic product due to its exposure to faster-growing geographic regions and product innovation. "Celanese has developed a patented process to produce ethanol from hydrocarbon feedstocks, like natural gas. The method is 40% cheaper than producing ethanol from agricultural feedstocks, like corn," he said. Celanese rose more than 2% over the past month to $46.14 in morning trading Monday. -By Amy Or, Dow Jones Newswires; 212-416-3142; amy.or@dowjones.com

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