First Eagle's de Vaulx Plans for Loss of Eveillard (Update1)

2003-10-23 12:33 (New York)

(Adds detail on Eveillard's investments in third paragraph.)

Oct. 23 (Bloomberg) -- Charles de Vaulx, the 41-year-old co-

manager of the First Eagle Global Fund, is lowering investors'

expectations as his partner, 63-year-old Jean-Marie Eveillard,

prepares to retire next year after running the fund since 1979.

Matching Eveillard's performance will be close to impossible,

de Vaulx said in a telephone interview from his New York office.

Under Eveillard, the $3.7 billion First Eagle Global Fund rose at

an annual rate of 15 percent during the past 24 years. ``I will not

be able to do as well,'' said de Vaulx, who has spent his 16-year

investing career working with Eveillard.

With equity valuations high relative to the late 1970s, stocks

aren't going to replay the bull markets of the 1980s and 1990s, de

Vaulx said. Eveillard made money for clients by investing in

everything from Mexican bonds after the country's 1994 currency

crisis to shares of gold-mining companies in the mid-1990s when

most other investors shunned the metal.

``Everybody out there better have low expectations for

returns,'' de Vaulx said.

During the past five years, the First Eagle fund climbed 16

percent a year on average, ranking No. 1 of 32 similarly managed

global stock funds tracked by Bloomberg.

De Vaulx joined Eveillard as co-manager of the fund in 1999

just as equity markets were peaking. During the late 1990s,

Eveillard's fund underperformed because he declined to invest in

the Internet stocks that were powering the market. In 1998, the

fund declined 0.2 percent while the S&P 500 surged 27 percent.

Tyco Holding

Eveillard and de Vaulx, a graduate of France's cole Sup‚rior

de Commerce de Rouen, seek shares that trade for less than the

value of their assets. De Vaulx has been responsible for assembling

a staff of six analysts who pick stocks from all over the world.

De Vaulx said he'll use the same investment philosophy that

has guided the fund for more than two decades.

Sometimes, the fund moves too soon. Eveillard and de Vaulx

bought shares of Tyco International Ltd. starting around $15 a

share and watched as the stock slid to $8 last year. This year,

Tyco shares are up 29 percent to $22.02. Eveillard and de Vaulx

think the stock is worth about $23 to $24 a share.

``We knew for years the accounting was loose and the growth

claims were nonsense,'' de Vaulx said. ``Still, they had acquired

some good cash producing businesses.''

Recently, de Vaulx said he's been buying shares of Swiss

elevator manufacturer Schindler Holding AG that competes with Otis

Elevator Co., a unit of United Technologies Corp. The Swiss firm's

shares dropped 22 percent on Feb. 27, the biggest fall in 13 years,

after the company said it spent 386 million francs ($290 million)

to cut jobs and close plants.

Elevators and Sea Freighters

It was a typical purchase for the fund, which had owned the

stock in the mid-1990s, de Vaulx said. ``They're not the premier

company as Otis has higher profit margins,'' he said. ``Even though

we admit they'll never be as profitable, we think they'll be able

to do well.''

Another favorite is Kuehne & Nagel International AG, the

world's biggest sea freight company. The company helps send goods

all over the world without owning its own ships, planes or trucks,

de Vaulx said.

``It's not the capital intensive business model of

transportation companies that everyone thinks it is,'' he said.

``And there is long-term growth as more and more U.S. and European

companies do outsourcing.''

About 12 percent of the First Eagle fund was invested in Japan

at the end of September. The fund has eliminated, or hedged away,

about 70 percent of its exposure to the Japanese yen, forgoing some

gains as the currency increased 8.5 percent against the dollar this

year. ``We worry about the temptation of the government to let the

yen weaken to revive the economy,'' he said.

`Mirror Image'

The First Eagle fund team, which now oversees five funds and

more than $8 billion of assets for clients, started as part of

French bank Societe Generale SA. New York's Arnhold and S.

Bleichroeder Advisers bought the fund group in 1999.

Fans of Eveillard aren't planning to bail out when he retires,

according to Vern Hayden, a financial adviser who oversees $100

million in Westport, Connecticut, and uses the First Eagle Global

Fund as what he calls a ``hard core'' holding in many of his

customers' accounts.

De Vaulx has ``virtually a mirror image of the philosophy that

Jean-Marie created,'' Hayden said in a telephone interview. ``This

deep-value philosophy has disproved the cliche that you have to

take more risk to get more return.''

De Vaulx agrees. ``Like my partner, I literally hate the idea

of losing money,'' he said. ``From a psychological standpoint,

we're on the same wave length.''

--Aaron Pressman in the Boston newsroom (617) 338-5822 or

apressman@Bloomberg.net with reporting by Richard Craig in

Princeton. Editor: Quinson.