Hockey club owner plans public fund to invest in rare coins.

Hockey club owner plans public fund to invest in rare coins

Bruce P. McNall, numismatist extraordinaire and owner of the Los Angeles Kings hockey club, plans to raise as much as $75 million to fund a high-risk public limited partnership to buy and sell collectible coins.

To help trade coins for the new partnership, McNall has bought a majority stake in the 60-year-old Beverly Hills-based Superior Stamp & Coin Inc., the world's premier coin auctioneer and dealer. Last year Superior sold more than $44.7 million of coins at auction.

Lawrence Goldberg, 48, senior active member of the Goldberg clan that has operated Superior for six decades last week said McNall bought 51 percent of the company. "We feel it will be a happy marriage."

McNall, 39, is in a "quiet period" -- a span of time when he restricted by federal regulations from talking to the press -- and was unavailable for comment last week.

McNall's limited partnership, to be syndicated by brokerage giant Merrill Lynch, plans to invest a maximum of $63.9 million of net capital to build a coin portfolio. The plan is to make trading profits, and then sell all coins and disband by 1998, according to mandatory Securities and Exchange Commission filings.

If $75 million is raised from investors, $11.1 million will be consumed in management and brokerage fees and other costs in the first year.

The partnership, named The NFA World Coin Fund, L.P., will have offices at McNall's current World Numismatics Inc. headquarters in West Los Angeles.

The McNall limited partnership offering comes at a time when brokerage houses are finding a mixed public response to new equity issues, particularly on the retail side.

For example, the Los Angeles offices of investment banker Oppenheimer & Co. recently withdrew a $17 million initial public offering of stock in Brooksfilms Inc., a company led by producer Mel Brooks, after weak retail interest.

However, last week Thomas Weinberger, Oppenheimer's senior banker in Los Angeles, said the firm had just successfully marketed an initial offering of new issue made up of Indonesian stocks, named the Indonesian Fund. "We just brought [public] the $60 million Indonesian fund, which was oversubscribed," said Weinberger. "I think the market is selective in what it is willing to buy, but it will buy."

But another investment banker said the very concept of limited partnerships has taken a beating of late, due to the terrible performance and high management fees of many oil and real estate limited partnerships. "I would think it is tough time to sell any kind of limited partnership," said the investment banker. "The very words "limited partnership' conjure up debacles."

If investors do snap up the McNall partnership, it will be due in part to the solid performance of coins as an investment during the last 20 years.

Coins in 1989, as an investment group, surged by 30.2 percent, beating out even the bull market, according to Salomon Bros., the New York-based brokerage house.

For the last 20 years coins have increased in value at a 16.6 percent annually compounded rate.

Indeed, coins are the rare investment that performed well in both the decade of the 1970s -- which favored tangible investments such as coins, stamps, gold and houses -- and the 1980s, which favored financial investments, such as stocks and bonds.

Nevertheless, certain to raise doubts among Merrill Lynch customers is McNall's continuing role in coin markets as a major private collector and as an operator of two separate private limited partnerships, with combined capital exceeding $32.3 million, that are also coin-collecting ventures.

"You have to wonder what coins he will buy for himself, and what he will buy for the public limited partnership," said one observer. "This is one thing that always irritates me about limited partnerships: The managing general partner often has a built-in conflict of interest, because they are still doing business on their own."

The observer added, "This is just one more example of what Wall Street is peddling. More and more products to get commissions."

Another shortcoming of the limited partnership approach is that 15 percent of investor funds are consumed by management and brokerage fees up front. Out of each dollar raised from Merrill Lynch investors, only 85 cents will be available to buy coins in the best scenario, and only 80 cents, in the worst scenario.

To achieve only a 20 percent return for investors, the coins McNall buys must appreciate by more than 40 percent.

Too, there will be annual management fees of 1.7 percent of the value of the managed portfolio of coins.

One more worry: The McNall partnership is large enough to influence coin prices in the submarkets it intends to target.

According to McNall's filing with the the SEC, "The [McNall] partnership may exert a significant influence on certain segments of the rare coin marketplace, especially if 75,000 units are sold [if $75 million is raised]. The partnership will be focusing on coins of the highest degree of quality and rarity, a submarket which, by its nature, is much more limited [than the whole coin market]. Since the net offering proceeds available for purchasing coins is expected to be committed within a relatively short period of time, the rapid infusion of cash could cause certain prices to rise. Similarly, during its liquidation period, significant and numerous partnership sales could depress certain prices."

In other words, the McNall partnership, as an elephant in the rare coin markets, could end up buying high now in overheated coin markets and selling low in 1997.

Still, McNall has already achieved a degree of success in operating coin-buying limited partnerships, according to the SEC filing.

One of his two private limited partnerships, the three-year-old Athena I fund, claims to be scoring average gross profits of between 35 percent and 45 percent on coins bought and sold. Total returns per annum, for investors, are running in the low 20 percent range, although those profits include putative capital appreciation on coins not yet sold.

Indeed, McNall's claim to fame is that as a young scholar and collector in 1974, fresh out of UCLA's history department, he traveled to Greece with $500,000 of borrowed cash to bid on a rare Greek decadrachma.

He outbid Valerie Giscard D'Estaing for the 2,400-year-old ducat, paying $420,000, and brought the coin back to the states, where he unloaded it for a cool $1 million.

In buying Superior Stamp & Coin, McNall has collected a growth company: The company's auction sales, which are public, have increased from $4.8 million in 1984 to $25.1 million in 1987 to $44.7 million last year, according Goldberg.

Holmby Hills resident McNall is also known for his activities in horse racing -- he owns the Summa Stables -- movies, and, of course, the Los Angeles Kings, which he purchased from Lakers owner Jerry Buss in 1987 for $40 million. Shortly thereafter NcNall purchased superstar forward Wayne Gretzky from the Edmonton hockey club for $15 million.

Despite McNall's many successes, one investor last week was unconvinced of his new coin fund's merits.

"Maybe this is how he [McNall] will pay Gretzky's salary," said the investor. [Tabular Data Omitted]