How Paul Cook’s Munder Net Net fund crashed

The Munder Net Net fund was first thought up by Paul Cook when he was building a splashy web page for Munder.  While this hardly seems like a good example of a well-thought out marketing strategy, this origin story was spread around as a great example of thinking outside of the box.  But despite its strange beginnings, the fund quickly started to perform amazingly well.  For three years the Munder Net Net fund rode the tech bubble into the stratosphere.

As it started to perform better and better, many more investors raced into the doors to get in on what seemed like a sure thing.  Paul Cook, the founder, started to become a bit of a media darling.  As the Wall Street Journal reported, “Cook did scores of television interviews, becoming recognizable enough to be approached by strangers in airports and restaurants.”

The fund was talked up in just about every way.  Then the fund announced that it was closing the portfolio to new investors, but it did id in a strange way.  Most funds close by setting an asset limit or by giving one or two days notice.  However, the Munder Net Net fund gave almost a month notice in advance.  According to the websites I was researching the fund at, such long-term announcements for funds that are doing extremely well usually result in a final spending craze, as investors see the fund as a limited-time offer-causing mountains of cash to pile in.

As the Wall Street Journal mentioned, this strange closing occurred “coincidentally, it would turn out, just as the stock market was peaking. Messrs. Munder and Cook declined to comment.”

But those hordes of new investors were in for a rough surprise as “the flagship fund dove 54%, followed by a 48% loss in 2001 and a 45% decline in 2002. Between the investment losses and investors yanking their money out, NetNet shrank to $1 billion in late 2001 — and was reopened to new accounts, as Munder laid off 31 people, or 11% of its staff.”

See what I mean? Here’s the tech bubble in microcosm, with a fund that shouldn’t have been doing as well as it was (after all, many people admitted that they thought technological shares were overvalued back in 1996), skyrocketing on the basis of celebrity and what seemed like a “sure thing,” and then proceeding to lose all of the money it originally gained.

And it burst, much like a soap bubbles on a cactus.

 

 

 

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