Latest / Masters in Business / At the Money Special: Activist Investing for NAV

Transcript

At the Money Special: Activist Investing for NAV · Masters in Business

0:08
Speaker 1: Stand up, Stand up, right.
0:14
Speaker 2: Up, set up.
0:18
Speaker 3: Right. This week an unconventional At the Money at future
0:24
Speaker 3: Proof Miami, I sat down with Boaz Weinstein. He's a
0:29
Speaker 3: previous guest on Masters in Business. He runs SABA Capital,
0:33
Speaker 3: and he's one of these people that looks at the
0:36
Speaker 3: world a little differently than everybody else. He identifies mispricings
0:41
Speaker 3: in real time, and not only does he purchase various
0:46
Speaker 3: funds that are mispriced, he then goes about agitating for change.
0:51
Speaker 3: One of the areas that he had been doing this
0:54
Speaker 3: with in the past was spas, and we've talked about
0:57
Speaker 3: that on our previous recording with him. Lately, he has
1:02
Speaker 3: been agitating for change in closed end funds that are
1:07
Speaker 3: trading at double digit discounts to fair value. A closed
1:11
Speaker 3: end fund trades like an ETF, but it's constructed of
1:16
Speaker 3: holdings like a mutual fund, and the actual closed end
1:21
Speaker 3: fund will trade up or down simply in response to
1:25
Speaker 3: trading supply and demand. Anyway, rather than have me babbel,
1:31
Speaker 3: here is our extra special edition live from future Proof
1:35
Speaker 3: Miami At the Money with Boaz Weinstein. So let's start
1:40
Speaker 3: talking a little bit about what you actually do. You
1:44
Speaker 3: have been delivering equity like returns with credit like risks,
1:49
Speaker 3: with bond like risks. That's quite a trick. Tell us
1:53
Speaker 3: a little bit about the areas you focus on.
1:56
Speaker 1: Sure, So I've had my firm for sixteen years to
2:00
Speaker 1: hedge fund and we have three publicly listed vehicles, one
2:05
Speaker 1: of them being an ETF, and two closed end funds
2:08
Speaker 1: on the New York Stock Exchange. And and I've been
2:12
Speaker 1: working on Wall Street continuously other than when I was
2:14
Speaker 1: in school, since I was sixteen. And you know, over
2:18
Speaker 1: that time, I've had the chance to be right sometimes
2:22
Speaker 1: wrong sometimes and also seeing how people that were right
2:27
Speaker 1: for a while, and you know, people worshiped to Garzarelly
2:31
Speaker 1: or copy Wood or you know whoever the flavor of
2:34
Speaker 1: the of the period was. But eventually we realize how
2:38
Speaker 1: hard it is to know where the markets are going
2:40
Speaker 1: to go. And and sometimes we excuse ourselves because we say, Okay,
2:45
Speaker 1: it was a surprise, it was nine to eleven, or
2:47
Speaker 1: it was COVID, But predicting the markets is really tough.
2:51
Speaker 2: And and you.
2:53
Speaker 1: Know, I say this, We've been in a bull market,
2:54
Speaker 1: so beta has paid off, but it's not always going
2:57
Speaker 1: to And I always was very focused on arbitrage. I
3:01
Speaker 1: was always interested in miss pricings, not having the beta
3:05
Speaker 1: being long, one thing short another thing, looking for miss pricings,
3:09
Speaker 1: whether it was in the spack market when they tumbled
3:12
Speaker 1: and they had bond like risk, as you said, with
3:15
Speaker 1: some equity upside, when they were trading below their redeemable
3:18
Speaker 1: value and they were in T bills, and about ten
3:21
Speaker 1: years ago, twelve years ago. Now I got very interested
3:25
Speaker 1: in a product that many of view in the audience
3:27
Speaker 1: are familiar with because it's a retail product, which is
3:30
Speaker 1: closed end funds. Now, if I asked for hands, who
3:33
Speaker 1: knows what a closed in fund is? I think almost everyone's.
3:35
Speaker 1: I didn't even ask, and that guy stuck his hand up. Okay,
3:37
Speaker 1: so people know what they are. I just want to
3:41
Speaker 1: just take a second, though, because what I love about
3:43
Speaker 1: what we do in closed end funds is that it
3:46
Speaker 1: does not require us to think we know the future
3:49
Speaker 1: the direction of markets. But as you all probably know,
3:52
Speaker 1: there's about five hundred of them, about half are in
3:54
Speaker 1: the UK, half are in the US, small number in
3:57
Speaker 1: Australia and Canada. And often they own public securities, maybe
4:03
Speaker 1: entirely public. Sometimes they own illiquid private securities. Reads private equity,
4:11
Speaker 1: music royalties, all sorts of exotic things. But I've been
4:15
Speaker 1: focused on the public security side. So funds we see
4:18
Speaker 1: actually the sponsors of them right here front and center.
4:20
Speaker 1: We have Blackrock, we have Devine has dozens of UNI funds.
4:24
Speaker 1: Blackrock has about eighty of these closed end funds. And
4:27
Speaker 1: you can check every day on Bloomberg or elsewhere what
4:30
Speaker 1: the NAV is, and there is no disputing what the
4:33
Speaker 1: NAV is. The NAV is calculated off of the closing price,
4:36
Speaker 1: so all of us would agree with the NAV is.
4:38
Speaker 1: So you have the NAV, you have the price, and
4:41
Speaker 1: those two things are often not the same. And when
4:43
Speaker 1: the NAV is at a big discount, it isn't necessarily
4:47
Speaker 1: an opportunity barry, because it can stay at that discount
4:49
Speaker 1: for a decade. Why should it not become a bigger discount.
4:53
Speaker 1: Who's to say that that's money well spent. Maybe the
4:55
Speaker 1: discount reflects the manager's fees and the investors' inability to change.
5:00
Speaker 1: So what we've done is we've come in with an
5:04
Speaker 1: institutional great offering, be it our private funds or our
5:08
Speaker 1: publicly listed funds, and we bought seven billion of closed
5:11
Speaker 1: end funds. So we're the world's largest owner of closed
5:14
Speaker 1: end funds. And we didn't just buy seven billion willy nilly.
5:17
Speaker 1: We pick the ones with the biggest discounts, with the
5:20
Speaker 1: best language, with the managers that are going to be
5:23
Speaker 1: most in our view, likely to do a deal. Because
5:25
Speaker 1: here's the where the rubber meets the road. If you
5:28
Speaker 1: buy a dollar of NAV for eighty six cents, and
5:31
Speaker 1: even if it takes you two years to turn eighty
5:33
Speaker 1: six back into one hundred, you have added equity like
5:37
Speaker 1: returns on top of whatever the underlying return is. And
5:39
Speaker 1: sometimes underlying return is it's Muni's you know, it's things
5:43
Speaker 1: we want. And so what I found over time is
5:47
Speaker 1: that the bigger we got, the more votes we got,
5:50
Speaker 1: and the more we got management to take steps. And
5:53
Speaker 1: I'll pause in a second, give you the microphone back
5:56
Speaker 1: to press a button and immediately give everyone eighty six
5:59
Speaker 1: back into a hundred. What are those steps? Open end
6:02
Speaker 1: a closed end fund, make it into like an ETF
6:05
Speaker 1: or a mutual fund. The discount disappears overnight.
6:08
Speaker 3: And that's because of the arbitrage opportunity.
6:11
Speaker 2: That's because yeah, ETFs are redeemable. There.
6:14
Speaker 1: You can create them, you can redeem them. Mutual funds
6:16
Speaker 1: have the manager has to sell and give you navback,
6:19
Speaker 1: and so open ending a closed end fund, no one disputes.
6:22
Speaker 1: Will give the entire discount back to the investor who
6:25
Speaker 1: has suffered in it if they bought it at IPO
6:28
Speaker 1: or otherwise. And so if you think about it, we're
6:30
Speaker 1: not talking about small potatoes. Eighty six to one hundred,
6:33
Speaker 1: by the way, is more than fourteen percent, and I
6:35
Speaker 1: think you all know why one hundred to eighty six
6:37
Speaker 1: is fourteen percent. So you know we have been successful
6:42
Speaker 1: in getting it done faster and faster because as we
6:44
Speaker 1: went from a billion to three to five to seven,
6:47
Speaker 1: our ability to vote the bums out as they say
6:50
Speaker 1: if they don't do what's right for shareholders and put
6:52
Speaker 1: in a board that will is now causing managers to
6:56
Speaker 1: increasingly take practice steps to narrow the discounts before we
6:59
Speaker 1: ever get to their their board meeting.
7:00
Speaker 3: So let's talk a little bit about that move from
7:03
Speaker 3: two billion to seven billion. When I had you on
7:06
Speaker 3: Master's in business, you had a chunk of money in
7:09
Speaker 3: spacks and we could talk about spacks a little later,
7:12
Speaker 3: and you had a chunk of money in closed end funds,
7:16
Speaker 3: and part of the conversation was the difficulty in getting
7:22
Speaker 3: entrench management's attention to say, hey, why are you selling
7:26
Speaker 3: dollar bills for seventy five cents? Why aren't you unlocking
7:29
Speaker 3: this value? Tell us the process that led you to
7:33
Speaker 3: go from two billion in closed end funds to seven billion.
7:37
Speaker 1: Right so, and unfortunately they're not the ones selling a
7:41
Speaker 1: dollar for eighty five cents. It's the frustrated shareholder that
7:44
Speaker 1: has seen it sit there and they have no way
7:46
Speaker 1: to get back to a dollar without without us because
7:49
Speaker 1: they're small investors. And so over time we started to
7:52
Speaker 1: get more successful at it. Thanks for mentioning, you know,
7:55
Speaker 1: we got these kind of institutional awards and all of
7:58
Speaker 1: a sudden, institution US state pensions looked at this as
8:03
Speaker 1: an alpha that they don't have in their portfolio. So
8:06
Speaker 1: you know, if they give us an often institutional ticket
8:10
Speaker 1: is over one hundred million dollars if we from a
8:12
Speaker 1: state pension. We got four of them in the last
8:14
Speaker 1: two years. It allows us to get bigger, faster, stronger,
8:18
Speaker 1: so that we don't have to have a fifteen percent
8:21
Speaker 1: position in the fund. If we have a twenty nine
8:23
Speaker 1: percent position in the fund. Management is very worried that
8:26
Speaker 1: we'll be able to cause the fund to liquidate and
8:29
Speaker 1: they would lose one hundred percent. And so basically they
8:32
Speaker 1: know that something screwed up that they could have given
8:35
Speaker 1: up a little bit of fees to shrink the fund
8:37
Speaker 1: buy back stock. Buying back a dollar for eighty eight
8:40
Speaker 1: cents is a creative to make their investors' money. But
8:43
Speaker 1: it's always really a question of you know, greed, where
8:47
Speaker 1: the manager says, I.
8:49
Speaker 2: Don't want to do that.
8:50
Speaker 1: People should be patient, whether it's been a year or
8:52
Speaker 1: five years, and they don't want to shrink their fund,
8:54
Speaker 1: and if they wait too long, I'm going to shrink
8:57
Speaker 1: their fund for them in a much more severe way.
8:59
Speaker 1: And in two kse is, actually we replaced the manager
9:03
Speaker 1: and we were nominated awarded with the mandate. So we
9:07
Speaker 1: now run two of these funds. We have two closed
9:08
Speaker 1: end funds of closed end funds, and so you know,
9:13
Speaker 1: it's really just like a fight between two asset managers
9:17
Speaker 1: that have a vested interest in themselves. But also I'm
9:21
Speaker 1: invested alongside the shareholders. I want what they want. I
9:24
Speaker 1: want a chance to exit at an ev if the
9:26
Speaker 1: investor doesn't want to if you open end the fund
9:28
Speaker 1: and they stay great. They If the manager tenders for
9:31
Speaker 1: shares at NAV and you don't want a tender for
9:33
Speaker 1: some reason, your loss great. But my view is that
9:39
Speaker 1: just because this thing iPod in nineteen forty nine, by
9:41
Speaker 1: the way, there's one in the UK iPod eighteen fifty five.
9:44
Speaker 1: Just because at iPod in eighteen fifty five doesn't mean
9:47
Speaker 1: until three thousand and fifty five the shareholder has to
9:50
Speaker 1: suffer under the discount because they signed up to have
9:55
Speaker 1: to elect a board, and the board is supposed to
9:57
Speaker 1: be working for shareholders. And what I find as a
10:00
Speaker 1: patriotic American capitalist is that over in the UK the
10:04
Speaker 1: boards have not forgotten that they're working for shareholders, much
10:08
Speaker 1: more than in the US, where often we have to
10:10
Speaker 1: face entrenchment. One of the things we have to do
10:12
Speaker 1: that our shareholders don't is pay legal bills and go
10:16
Speaker 1: to court as we as we have successfully suing for
10:19
Speaker 1: our right, for example, to vote all of our shares.
10:21
Speaker 1: So it is a scrappy fight. But in about eighty
10:25
Speaker 1: instances now we have gotten management to give investors a
10:30
Speaker 1: chance to exit at any v or close, which they
10:32
Speaker 1: never ever would have done without us.
10:35
Speaker 3: And the returns of a closed end fund that looks
10:39
Speaker 3: like a sixty forty portfolio. You've been generating returns of
10:44
Speaker 3: about twelve percent, and a lot of these products, your competitors,
10:48
Speaker 3: the other activists in the space, have been underperforming that.
10:52
Speaker 3: They've been doing about four percent, which doesn't seem especially exciting.
10:57
Speaker 3: What are you guys doing so differently with closed end
11:01
Speaker 3: fund challenges that has led to this the track record
11:05
Speaker 3: and the success sabas put together.
11:07
Speaker 1: Yeah, so I think you're referring to our ETF. The
11:10
Speaker 1: ticker is CEFS like closed in funds pleteral. And actually
11:16
Speaker 1: those other competitor products are not activists. They're in fact
11:19
Speaker 1: not you know, it's not that they're sometimes they're just
11:23
Speaker 1: trying to find closed in funds they like, or maybe
11:25
Speaker 1: it's more like an index approach to closed in funds.
11:28
Speaker 1: And if you buy a closed in fund a minus
11:29
Speaker 1: fourteen and a year later it's still a minus fourteen,
11:32
Speaker 1: or you've paid the manager of their fee, you've also
11:34
Speaker 1: charged your investor of the fee, so you have kind
11:36
Speaker 1: of two layers of fees. So you better be narrowing
11:39
Speaker 1: that discount or you're not delivering alpha, and so not
11:42
Speaker 1: some of them are here, by the way, Invesco has
11:44
Speaker 1: a product called PCEF, and what I also find interesting
11:48
Speaker 1: in this space is that it's so retail centric. And
11:53
Speaker 1: you know, if Morgan Stanley Wealth Management has recommended PCEF,
11:57
Speaker 1: it will grow more even at making four percent a
11:59
Speaker 1: year than then the same underlying closed end funds making
12:03
Speaker 1: twelve percent a year. So I think PIECEF probably has
12:05
Speaker 1: grown more than us in the last five We're actually
12:07
Speaker 1: celebrating our eighth anniversary of this ETF. And so yeah,
12:12
Speaker 1: so if you're not If you own one hundred clothes
12:14
Speaker 1: in funds and the only ones that are narrowing are
12:16
Speaker 1: the ones sabas in, you're gonna have a pretty mediocre
12:19
Speaker 1: return after fees or all of ours. I do not
12:23
Speaker 1: buy a closed in fund where I feel like, if
12:26
Speaker 1: it doesn't narrow, I'm not going to go to management
12:29
Speaker 1: and say, please, you have easy steps to make it narrow.
12:32
Speaker 1: Do not put your own greed in front of your shareholders.
12:34
Speaker 3: You just had an interview in the Financial Times last
12:38
Speaker 3: month and I love the quote, I love punching a
12:42
Speaker 3: bully in the nose. Tell us what you were doing
12:44
Speaker 3: in the UK and why the Financial Times decided to
12:47
Speaker 3: have a sit down with you.
12:50
Speaker 1: So in the UK the market is even older than
12:55
Speaker 1: it is here, and it's actually like there's a lot
12:58
Speaker 1: of pride about They're called investment try there it's I
13:01
Speaker 1: think forty percent of the foot seed two fifty or
13:03
Speaker 1: these investment trusts. People seem to like them. They get
13:06
Speaker 1: to go every year and sit in a meeting and
13:07
Speaker 1: hear about the economy and have a have a ribbi
13:10
Speaker 1: and you know, even if the manager has underperformed or outperformed,
13:15
Speaker 1: there is a lot of love for the product. But
13:17
Speaker 1: what happened was in twenty twenty one when we had
13:21
Speaker 1: inflation and we had a crisis in the UK, the
13:24
Speaker 1: LDI crisis, and people were selling things. And then later
13:28
Speaker 1: even in twenty twenty four, they increased capital gains taxes
13:32
Speaker 1: and it caused people to want to sell in front
13:34
Speaker 1: of that before the new tax code. And the problem
13:37
Speaker 1: with these products is they don't have natural buyers at
13:41
Speaker 1: low discounts. Only really savvy investors that look for a
13:45
Speaker 1: double digit discount are there to buy them. So they
13:47
Speaker 1: can fall like a knife from minus one to minus
13:49
Speaker 1: thirteen and with enough selling no matter how big we are,
13:53
Speaker 1: even at seven billion in a five hundred billion space,
13:56
Speaker 1: you know that that discount can grow. So in the
13:58
Speaker 1: UK there was a lot of selling thanks to these
14:01
Speaker 1: two problems, and we ramped up and we bought twenty
14:06
Speaker 1: nine percent positions and some of these funds, and only
14:10
Speaker 1: then were they willing to do things that they are now.
14:13
Speaker 1: We're now currently engaged. It's in the press with four
14:15
Speaker 1: of the boards and two of the other boards have
14:17
Speaker 1: already agreed. We're going to give investors a cash option
14:20
Speaker 1: to exit an NAV open end or tender, and that's
14:24
Speaker 1: what we wanted. If you want to keep your if
14:25
Speaker 1: you want to keep getting your steak dinner every year,
14:28
Speaker 1: and you want to stay in your closed in fund,
14:29
Speaker 1: whether it's underperformed by forty or outperformed by eight, which
14:32
Speaker 1: were two actual funds in question. Fine, but there is
14:36
Speaker 1: a set of shareholders, not just us, that if you
14:39
Speaker 1: offer them a chance to get out at an av
14:41
Speaker 1: they will take it because they're not foolish. They'll make
14:45
Speaker 1: a twelve percent gain. Your portfolio literally goes up by
14:48
Speaker 1: twelve thirteen percent in a day if it wasn't if
14:51
Speaker 1: it was instantaneous. And then you take that money and
14:53
Speaker 1: you do something else savvy with it. You buy another
14:55
Speaker 1: closed in fund at a discount, or you buy an
14:56
Speaker 1: open ended fun So you know, to no one in
14:59
Speaker 1: this audience, will it be a surprise that if you
15:01
Speaker 1: offer someone a free thirteen percent with no consequences, they're
15:05
Speaker 1: going to want to take it. But it took me
15:07
Speaker 1: getting to twenty nine percent for the managers to want
15:10
Speaker 1: to do something about it. And so I sent a
15:12
Speaker 1: letter on December eighteenth to seven of them at the
15:14
Speaker 1: same time, saying, and you have the right in the
15:17
Speaker 1: UK with a position size above five percent to call
15:20
Speaker 1: an annual board meeting and they have to hear they
15:23
Speaker 1: have to vote on any proposal. And I sent a
15:25
Speaker 1: letter to seven funds and my proposal was replace all
15:29
Speaker 1: of you and replace them with us. So it was
15:31
Speaker 1: very aggressive, and they closed ranks. They did all sorts
15:36
Speaker 1: of things to get the vote out. They did phone voting.
15:39
Speaker 1: Can you imagine an election where you call on the
15:41
Speaker 1: phone and you say, I don't even know what they said.
15:43
Speaker 1: They said, we think it's better if you vote against
15:46
Speaker 1: SABA and vote with your manager. Do you want to
15:48
Speaker 1: do that? I don't know if they got the right
15:50
Speaker 1: person on the phone. I don't know if they gave
15:51
Speaker 1: me a fair hearing, but they actually took phone votes
15:53
Speaker 1: as the main way to reach their holders, and they
15:55
Speaker 1: defeated us on that proposal. And then the telegraph said
16:00
Speaker 1: we need to send that American home with his tail
16:02
Speaker 1: between his legs. And then somebody weroid, Okay, he stuck.
16:05
Speaker 1: What's he going to do?
16:05
Speaker 2: He lost?
16:06
Speaker 1: What's he going to do? And I'm like, I'm not stuck.
16:09
Speaker 1: You're stuck because now everyone knows the score is, let's
16:12
Speaker 1: say forty two to thirty. You got forty two percent
16:14
Speaker 1: of the vote. We got thirty. If some of you
16:16
Speaker 1: in the audience buy this fund at minus ten, I'm
16:19
Speaker 1: not a group with you. You go and buy it
16:20
Speaker 1: at minus ten because you want the discount to close.
16:23
Speaker 1: If collectively the arbitragures of the world buy ten percent
16:27
Speaker 1: of it, my thirty is forty there, forty two is
16:30
Speaker 1: thirty two or thirty three if they buy some unvoted chairs.
16:33
Speaker 1: So we're in this kind of very uncomfortable spot right now.
16:36
Speaker 1: This is very recent where there's these funds sitting out
16:40
Speaker 1: there and everyone knows the distance between us losing in
16:44
Speaker 1: us winning, and so I'm in negotiations with them, but
16:47
Speaker 1: just to say, because what are we talking about is
16:49
Speaker 1: it small potatoes? There is thirteen billion pounds on in
16:53
Speaker 1: the UK market of just publicly traded underlyings, no illiquids
16:57
Speaker 1: where you worry about the NAV one hundred percent public,
17:00
Speaker 1: ninety nine percent public. Is thirteen billion pounds of trapped discount.
17:04
Speaker 1: So if somebody snapped their fingers, Charlie Munger rest in peace, Emperor.
17:07
Speaker 1: The world's kind of conversation. If you opened all closed
17:10
Speaker 1: end funds that are just public, the British pensioner and
17:14
Speaker 1: some institutions would be up thirteen billion pounds, the same
17:17
Speaker 1: kind of number in the US. So we're talking about real,
17:19
Speaker 1: real money.
17:20
Speaker 3: So it's thirteen billion there, about thirteen billion here. It's
17:25
Speaker 3: kind of unfathomable that the efficient market has not found
17:30
Speaker 3: a way to close that gap, unless you're the actor
17:35
Speaker 3: that is on behalf of the efficient market arbitraging the gap.
17:40
Speaker 3: Tell us a little bit, why all this money's lying
17:44
Speaker 3: around and nobody else has come up and closed this
17:48
Speaker 3: discount yet.
17:49
Speaker 1: Well, so activism is hard. You make enemies. I don't
17:52
Speaker 1: need to be Nuvene's friend. They're down, they're down the way.
17:55
Speaker 1: When when we had maybe there's someone here from Newvine
17:58
Speaker 1: so I.
17:58
Speaker 2: Can Someone's okay.
18:02
Speaker 1: Fine, So here's what Nuvine did. Federal law in the
18:07
Speaker 1: Investment Company Acts passing Congress in nineteen forty says, every
18:10
Speaker 1: share gets to vote.
18:12
Speaker 2: Every share gets to vote.
18:13
Speaker 1: Sound good, Every share gets to vote. The lobbying industry
18:17
Speaker 1: for the industry, got in state law something that says, well,
18:22
Speaker 1: they can limit your vote because no one investors should
18:24
Speaker 1: have an undue influence, you know, like we had federal
18:27
Speaker 1: lobbying different than state law for whatever, for marijuana, for
18:29
Speaker 1: whatever it is. You can have these at odds, and
18:32
Speaker 1: they limited our vote. We had like twenty percent of
18:34
Speaker 1: a fund. They only let us vote nine point nine nine.
18:36
Speaker 1: So we went to court and the judge did not
18:39
Speaker 1: need to hear the case. The judge decided on summary
18:41
Speaker 1: judgment that Nouvene had broken the law and that they
18:47
Speaker 1: hurt our ability to vote all our shares. And Nuvien
18:49
Speaker 1: appealed and the appellate court rejected unanimously Nuvine's appeal. And
18:54
Speaker 1: then a different manager did the same thing and we
18:56
Speaker 1: had to take that manager to court. So you know,
18:59
Speaker 1: it's to answer your question, it's not easy. You have
19:01
Speaker 1: to be willing to roll up your sleeves and pay
19:03
Speaker 1: legal bills and fight, you know those kinds of battles.
19:06
Speaker 1: You're not just paying for one fight. It could affect
19:09
Speaker 1: the next fifty, right if you can get the law
19:11
Speaker 1: to change, you know, to be clear. So not everyone's
19:15
Speaker 1: willing to be activists, and the activists are not so
19:17
Speaker 1: happy to run a foul of the managers who they need.
19:21
Speaker 1: If you think about an amazing manager like Blackrock, the
19:23
Speaker 1: Biggest right, why would it make sense for an activist
19:27
Speaker 1: to fight with Blackrock about their own closed end funds
19:29
Speaker 1: if they need to go and lobby them on Disney
19:33
Speaker 1: or you know whatever, Nestley, whatever it may be. So
19:35
Speaker 1: I'm in this weird place where I'm willing to just
19:37
Speaker 1: be an activist in my own space and asset management.
19:41
Speaker 1: And then it's not really an arbitrage barry because these
19:44
Speaker 1: funds can stay at discounts for decades unless someone is
19:47
Speaker 1: going to go, you know, go to the mat and
19:51
Speaker 1: have the buying power to get there. They are not
19:55
Speaker 1: arbitrage is they're actually and you're you're right, I mean
19:58
Speaker 1: a lot of there's been papers by Nobel Laureate economics
20:02
Speaker 1: professors in Chicago about the puzzle of the closed in
20:05
Speaker 1: fund discount. But it's not really a puzzle if you
20:07
Speaker 1: don't have a mechanism to narrow it, and you do
20:11
Speaker 1: the mechanism to elect a board and right now, the
20:16
Speaker 1: industry went to the New York Stock Exchange right now
20:19
Speaker 1: meeting the last year, and said, oh, we don't need
20:21
Speaker 1: those board meetings anymore. And they convinced the New York
20:24
Speaker 1: Stock Exchange to put forward a proposal to say the
20:27
Speaker 1: board meeting is not mandatory, even though it'd been like
20:30
Speaker 1: around for ninety years. And they kind of trick them
20:33
Speaker 1: by saying, well, we did this for ETFs, but ETFs,
20:37
Speaker 1: you don't need an annual board meeting because you can
20:38
Speaker 1: always vote with your feet and exit at NAV and
20:42
Speaker 1: closed in funds are very different. You need your voice,
20:44
Speaker 1: you need the ability to elect a board. So the
20:46
Speaker 1: SEC put out a twelve page paper saying this is
20:50
Speaker 1: not going to fly, and now they're coming back with Trinevan,
20:53
Speaker 1: a new proposal. The NYC hasn't decided yet on it,
20:56
Speaker 1: but basically it's a very tough fight. But it's a
20:58
Speaker 1: big fight because we're talking billions and billions of dollars
21:01
Speaker 1: even and just recently we made a very nice deal,
21:05
Speaker 1: mutually beneficial deal with Blackrock. We love Blackrock now they
21:08
Speaker 1: love us, and and and So the next day two
21:13
Speaker 1: tickers bim Easy and big Z, two tickers. The very
21:17
Speaker 1: next day, someone's giving me a fist pump. Do you
21:20
Speaker 1: own those tickers? Okay? Well MorphOS oh I got okay.
21:24
Speaker 1: So the very next day those two tickers combined market
21:28
Speaker 1: value was up two hundred million dollars. So if you
21:31
Speaker 1: think about like somebody goes to McKinsey and they're going
21:33
Speaker 1: to try to tweak, you know, please help our company
21:36
Speaker 1: do like you made two hundred million dollars because they
21:38
Speaker 1: announced a buy back tender. So there is enormous sums
21:42
Speaker 1: of money that that gentleman and that gentleman and this
21:45
Speaker 1: semi gentleman can can can achieve by buying discounts. It's
21:50
Speaker 1: not that complicated. It's so much easier than what you know,
21:53
Speaker 1: Stan Druckemeler, you know, does you buy discounts and you
21:57
Speaker 1: buy them over and over and over again, and then
21:59
Speaker 1: you have shares and then you vote them if they
22:01
Speaker 1: don't do something about it, And more and more the
22:03
Speaker 1: managers are doing something about it. So I wanted to
22:05
Speaker 1: say to all of you, for those of you who are
22:06
Speaker 1: not invested in this space, that it is I think
22:09
Speaker 1: an enormous opportunity, especially when markets are a little bit
22:13
Speaker 1: expensive to a lot expensive, to try to earn a
22:17
Speaker 1: very nice return from something that doesn't require the market
22:20
Speaker 1: to go up.
22:21
Speaker 3: So I want to talk a couple of things about that.
22:23
Speaker 3: I want to talk about what you're buying, but I
22:25
Speaker 3: also want to talk about the difference from when you're
22:28
Speaker 3: a two billion dollar NAT annoying the big closed end
22:33
Speaker 3: funds to a seven billion dollar Hey, we could take
22:37
Speaker 3: a substantial position in this fund. We could take fifty
22:40
Speaker 3: one percent and vote you out. Tell us how the
22:44
Speaker 3: process has changed as you've accumulated more assets under management?
22:49
Speaker 3: Are they taking you more seriously? The fact that Blackrock
22:53
Speaker 3: cut a mutually beneficial deal with you sounds like, oh,
22:58
Speaker 3: boaz is kind of a pain. Let's just let's just
23:01
Speaker 3: hear them out. Has it changed over the past decade?
23:05
Speaker 1: Well, look, they know that they their shareolders made two
23:08
Speaker 1: hundred million dollars the next day. And actually that's not
23:10
Speaker 1: even all of it, because the act of tendering is
23:13
Speaker 1: not even hasn't even occurred. So it was like an
23:16
Speaker 1: initial gain, and then there's some more gain to come
23:18
Speaker 1: between the end of this month and I think May
23:20
Speaker 1: or June for the second fund, so it's real sums
23:23
Speaker 1: of money.
23:23
Speaker 2: They can look good.
23:25
Speaker 1: We had a very actually very professional negotiation with them,
23:29
Speaker 1: and we're very happy with the tone in both directions.
23:32
Speaker 1: So what they are doing separate from us is I
23:36
Speaker 1: think they've decided that these discounts are not worth the
23:40
Speaker 1: damage to the brand. I'm not talking about that manager particularly,
23:44
Speaker 1: there are a couple of managers who are now doing
23:46
Speaker 1: things like if you look at the yield on closed
23:49
Speaker 1: in funds one year ago or a year and a
23:51
Speaker 1: half ago versus now, it actually went up three hundred
23:53
Speaker 1: basis points even though rates didn't go up. The reason
23:55
Speaker 1: they went up three hundred basis points is the manager
23:58
Speaker 1: decided to bump up the distribution. And I'm of two
24:02
Speaker 1: minds about it, because there are some funds that used
24:05
Speaker 1: to have a six percent distribution and went all the
24:07
Speaker 1: way to twenty or fourteen.
24:10
Speaker 2: So it seems a little bit like.
24:13
Speaker 1: A little bit I don't know what the word is,
24:15
Speaker 1: but like if one day you're able to pay six,
24:17
Speaker 1: then all of a sudden you're able to pay twenty
24:18
Speaker 1: Do you think that the dentist, the really nice dentist
24:21
Speaker 1: who you know, has a chain of dental establishments, understands
24:26
Speaker 1: that that fourteen is a return of your own money.
24:29
Speaker 1: Could you put a dollar in the assets are only
24:31
Speaker 1: earning six, they're giving you six, but then the next
24:34
Speaker 1: day they're starting to give you twenty. What's that fourteen?
24:37
Speaker 1: That fourteen is your own dollar coming back to you.
24:39
Speaker 1: And what happens is and you guys will know this.
24:41
Speaker 1: People will go in morning Star and they'll sort by
24:43
Speaker 1: yields and we'll say, amazing, look at this manager, and
24:46
Speaker 1: I get to have twenty percent, and I get to
24:47
Speaker 1: have growth equities. Sounds like the greatest thing ever. And
24:50
Speaker 1: they will bid up those closed in funds and the
24:53
Speaker 1: discount starts to go away. And there's some of them
24:55
Speaker 1: that even traded a premium, and so that's all fine,
24:59
Speaker 1: but they're there's no alchemy in finance. And at some point,
25:02
Speaker 1: if they cut that dividend again, you can have a
25:04
Speaker 1: fifteen percent loss, twenty percent loss in a single day.
25:06
Speaker 1: Otherwise that fund is just going to shrink and shrink
25:08
Speaker 1: and shrink, because it's shrinking by that fourteen every year.
25:11
Speaker 1: So so, but just to say, managers now are taking
25:14
Speaker 1: steps without us to return capital to investors at an
25:17
Speaker 1: ev through over dividending, through tendering, through other discount management plans,
25:22
Speaker 1: and in the UK, to their credit, they actually are
25:25
Speaker 1: replacing managers that have underperformed with better managers and that
25:29
Speaker 1: can cause the funds to trade better. So so I
25:33
Speaker 1: like it because it helps my existing portfolio. You know,
25:35
Speaker 1: I do wonder, well, what if this whole thing goes away?
25:38
Speaker 1: You know, that's kind of an interesting topic, but it's
25:41
Speaker 1: been around for this discount for a century. I don't
25:43
Speaker 1: think even with these steps, I don't think it's going away.
25:46
Speaker 3: And what are in these closed end funds? Is it bonds?
25:49
Speaker 3: Is it equities? Is it convertibles? What are the publicly
25:53
Speaker 3: traded and traded holdings that these closed end funds tend
25:57
Speaker 3: to hold?
25:58
Speaker 1: Right, So I'm not going to recommend my own fund overtly.
26:02
Speaker 1: I'm going to do it telepathically to all of you, okay,
26:04
Speaker 1: because I can't overtly tell you to go invest, you know,
26:07
Speaker 1: just let me do it and you relax at the beach.
26:10
Speaker 1: But I'm going to recommend another fund because I do
26:13
Speaker 1: want to give a ticker. You know, it's kind of
26:15
Speaker 1: the right, you know, nice thing to do, and it's
26:16
Speaker 1: actually a fun I recommended some months ago at Grants.
26:20
Speaker 1: I spoke at Jim Grant's like conference, and at the
26:23
Speaker 1: time we had a two percent position, so we were
26:25
Speaker 1: really quite small, but I didn't mind recommending it, even
26:28
Speaker 1: though we're buying it. We now have a seven percent position,
26:30
Speaker 1: and the ticker is g DV like gold does vary.
26:35
Speaker 1: I don't know, someone have a better one from that,
26:38
Speaker 1: And it's a Gabelly fund. And Gabelly has a number
26:42
Speaker 1: of funds that traded premiums to NAV. What premiums ten
26:45
Speaker 1: AV like, you know, even one of them has a
26:48
Speaker 1: sixty percent premium, so you can have funds at premiums also,
26:51
Speaker 1: which is another story. But this fund's at a double
26:53
Speaker 1: digit discount. It's at a thirteen discount. So you have
26:56
Speaker 1: a fund whose biggest holding is American Express, it's got
26:58
Speaker 1: JP Morgan, it's got Google. I believe, it's got those
27:02
Speaker 1: kinds of stocks. And it's three billion. But if it
27:06
Speaker 1: was at NAV, it would be thirty it would be
27:08
Speaker 1: fourteen percent more than three billion, So you were talking
27:11
Speaker 1: literally about four hundred million dollars to shareholders if it
27:15
Speaker 1: was open ended or if they somehow found a way
27:18
Speaker 1: to erase the discounts.
27:19
Speaker 2: So I like it because it's nice.
27:20
Speaker 1: To be able to take a two hundred million dollar
27:22
Speaker 1: position in something, and we have positions as big as
27:26
Speaker 1: four hundred and fifty million single funds. But so that's
27:28
Speaker 1: one that you know a lot of people here could
27:30
Speaker 1: buy at minus thirteen. You like the portfolio. The fees
27:33
Speaker 1: are high because these fees were set long ago. There
27:36
Speaker 1: are about one hundred and twenty BIPs, So I have
27:38
Speaker 1: to think about that. But there is a lot to
27:41
Speaker 1: do in the US and the UK right now, especially
27:43
Speaker 1: because the speed at which we're narrowing discounts has gone faster.
27:48
Speaker 3: So you mentioned you just alluded to something I want
27:52
Speaker 3: to follow up on. There are five hundred or so
27:55
Speaker 3: closed end funds between the US and the UK. About
27:59
Speaker 3: if I recall you saying this correctly, about one hundred
28:01
Speaker 3: of them trade at a double digit discount to nav
28:07
Speaker 3: How long can this go on for? Are you gonna
28:10
Speaker 3: put yourself out of business by creating all this value
28:14
Speaker 3: or is this something that is going to persist forever?
28:17
Speaker 1: So when these funds are not trading in discounts, the
28:22
Speaker 1: market can grow. They do secondary offerings, they bring new
28:25
Speaker 1: IPOs for that new hottest esg. You know, tech, whatever
28:31
Speaker 1: it may be, whatever the the thing that is sellable,
28:34
Speaker 1: and and so there there have been a shrinkage in
28:37
Speaker 1: the number of funds, but that's generally because of merger.
28:40
Speaker 1: I don't believe I'm gonna put myself out of business
28:42
Speaker 1: because because as much as big as we are at
28:45
Speaker 1: seven billion, again it's five hundred, so we're now we
28:48
Speaker 1: are seven out of a much smaller set of interesting funds.
28:52
Speaker 1: But lo and behold, if the market sells off, you know,
28:55
Speaker 1: I'm not gonna be able to keep to keep it
28:58
Speaker 1: from from selling off in my names either. And like
29:01
Speaker 1: when twenty twenty happened, all of a sudden, almost every
29:05
Speaker 1: fund was interesting. And that's the thing is if a
29:09
Speaker 1: funds at minus fourteen and you have a big sell off, yeah,
29:12
Speaker 1: it can go to minus twenty usually comes back pretty quickly.
29:15
Speaker 1: If it's at minus one and you have a big
29:16
Speaker 1: sell off, it can go to minus twenty just as quickly.
29:19
Speaker 1: And so there isn't a safety net where you would
29:22
Speaker 1: have people to catch it. You know, people say wow,
29:24
Speaker 1: at minus six sixteen seventeen. I like it even more so.
29:27
Speaker 1: I do think all sorts of funds that we were
29:30
Speaker 1: historically activist in or not. One of them, by the way,
29:33
Speaker 1: is a fun we were activist in that we shrunk
29:35
Speaker 1: it shrunk. It's trading now at plus one, and they've
29:39
Speaker 1: done two rights offerings. They've grown that fund. So I
29:42
Speaker 1: think the industry when it's not at a discount, can issue.
29:45
Speaker 1: When it is at a discount, it needs us even more.
29:48
Speaker 1: And we also, even when it's in the normal state,
29:51
Speaker 1: are cleaning up the weakest, biggest discounts. And I think,
29:54
Speaker 1: you know, ironically, we're in some ways an ally of
29:57
Speaker 1: the industry, even as an activist, because we're making it
30:00
Speaker 1: possible for them to bring new funds. You all obviously
30:03
Speaker 1: followed the saga of Bill Ackman trying to bring a
30:06
Speaker 1: twenty five billion dollar closed INN fund. If you, you know,
30:08
Speaker 1: think about location, location, location for real estate, what is
30:11
Speaker 1: the reason why he couldn't bring a twenty five billion
30:15
Speaker 1: or even a much smaller closed n fund discount discount discount.
30:18
Speaker 1: People were worried, if I buy it at IPO, what
30:21
Speaker 1: if it goes to a discount, I'll look silly. What's
30:23
Speaker 1: the mechanism to stop it from going to one hundred
30:25
Speaker 1: to ninety? And maybe that's even not an unlikely case.
30:29
Speaker 1: And so the protecting against the discount, having a having
30:33
Speaker 1: a discount management policy. If it ever gets to X,
30:36
Speaker 1: I'll buy it back, that kind of thing. I think
30:38
Speaker 1: that's the way forward for the industry to be able
30:41
Speaker 1: to issue more of these things. But it is challenged
30:44
Speaker 1: because you all know as well as I do about
30:46
Speaker 1: actively managed mutual funds, low cost ttfs, and so you
30:50
Speaker 1: know there is some theory, like when Heard on the
30:52
Speaker 1: Street wrote about my case in London, the journalist is
30:56
Speaker 1: basically like, what do we need these things for now?
30:58
Speaker 1: That offended a lot out of the UK market. Some
31:02
Speaker 1: of them are not needed, Some of them that have
31:03
Speaker 1: truly liquid assets are needed because an ETF would be
31:06
Speaker 1: the wrong rapper for it. So I do think there
31:08
Speaker 1: is a home for closed end funds and I can't
31:11
Speaker 1: get enough of them. I like, really, for twelve years,
31:15
Speaker 1: have just been interested in the house and wise it
31:19
Speaker 1: changes what regions, what product types. Right now, the most
31:22
Speaker 1: interesting are equities. You're asking, you know, just run of
31:25
Speaker 1: the mill public equities, and the UK is more interesting
31:29
Speaker 1: on average because the governance is better.
31:33
Speaker 3: So look the name of your ETF. The symbol is
31:37
Speaker 3: CEFS closed end funds, but you ended up taking over
31:42
Speaker 3: to closed end funds yourself as managers. Tell us about those?
31:47
Speaker 3: How did you end up running these? And what's the
31:51
Speaker 3: performance been? Like, what's the discount look like today?
31:55
Speaker 1: So there is a manager Voya that had a fund.
32:00
Speaker 1: Seeing some heads nod, and we bought twenty four percent
32:04
Speaker 1: of the fund. There was an election coming up, and
32:07
Speaker 1: some days before the election, they announced that for the
32:10
Speaker 1: better of shareholders, they thought the board thought that instead
32:14
Speaker 1: of us just needing the majority of the votes, which
32:18
Speaker 1: is usually I think about elections, you know, we would
32:21
Speaker 1: need sixty percent. But it wasn't even only that. We
32:24
Speaker 1: wouldn't need sixty percent of the votes. We would need
32:27
Speaker 1: sixty percent of all shares voted or unvoted. And I
32:30
Speaker 1: think they got something like fifty six percent to vote,
32:32
Speaker 1: so we would needed like sixty We needed more than
32:35
Speaker 1: every vote, Okay, So we took them to court. It
32:38
Speaker 1: was in Arizona, And you know, it's always funny, like
32:42
Speaker 1: if you've been in legal disputes and discovery, you're like,
32:45
Speaker 1: wait a second, how would you do that knowing that
32:47
Speaker 1: we would get to see the source documents, And there
32:51
Speaker 1: was some documentation that they were worried about losing the
32:57
Speaker 1: AUM to our action, and it was really too entrench
33:00
Speaker 1: which the board is supposed to be working for shareholders.
33:03
Speaker 1: It seems like they're working for Voya. So we took
33:05
Speaker 1: them to court and we won, and Voya resigned as
33:08
Speaker 1: manager and they said they'll stay as manager until we
33:11
Speaker 1: can find a new one, and we changed the mandate Barry.
33:14
Speaker 1: It was all hygold loans, and in a very opportune time,
33:17
Speaker 1: we sold all high lod loans between June of twenty
33:19
Speaker 1: one when we took it over and the start of
33:21
Speaker 1: the twenty twenty two bear market, and we replaced it
33:25
Speaker 1: even yield. So sell a single B loan or a
33:27
Speaker 1: double B loan at three fifty over library it was
33:31
Speaker 1: called at the time, and sell it at three fifty
33:35
Speaker 1: over and then buy a spack at three fifty over
33:39
Speaker 1: because they were trading at a three and a half
33:40
Speaker 1: point discount to their one year maturity date, and you
33:43
Speaker 1: would basically still earn your three fifty but you would
33:46
Speaker 1: have gone from single double B loans to triple at
33:49
Speaker 1: bills in a box at you know, JP Morgan or
33:51
Speaker 1: Bank America. And then twenty twenty two appened and we
33:54
Speaker 1: were out of two hundred and fifty seven closed in funds,
33:56
Speaker 1: we were the number one performer. So we got very lucky.
33:59
Speaker 1: I'm not going to be able to do that magic
34:00
Speaker 1: trick again. And you know, I would have been very
34:02
Speaker 1: happy to be twenty fifth out of two fifty, but
34:04
Speaker 1: instead we were first.
34:05
Speaker 2: So you know, it did not change.
34:07
Speaker 1: Our fund is still trading at a discount, trading at
34:09
Speaker 1: like a one of them's at a seven, one of
34:11
Speaker 1: them's at a nine, but single digit discounts. But what
34:14
Speaker 1: I want to tell you is that my general counsel said,
34:17
Speaker 1: I'm going to spare you the second story. Do we
34:20
Speaker 1: really want to run one of these? Because what if
34:21
Speaker 1: we do badly? And what if they say, you see,
34:23
Speaker 1: it's not so easy. And I said, I really want
34:26
Speaker 1: to run it to show that there is a better way.
34:28
Speaker 1: I'm going to change the governance how votes are cast
34:32
Speaker 1: to be friendly to the shareholder. So it used to
34:35
Speaker 1: be that let's say the election was staggered, We're going
34:38
Speaker 1: to do it all in one year, so you can
34:40
Speaker 1: you can get us all out in one period, change
34:42
Speaker 1: change it in other ways, and we're going to offer
34:44
Speaker 1: shareholders and exit near nav and we did that in
34:47
Speaker 1: both funds, so something that you know, we're often not
34:50
Speaker 1: able to get the managers to do with that coercion.
34:52
Speaker 1: So so I run two funds. The tickers are SABA
34:56
Speaker 1: and BRW and but you know, sometimes people look at
34:59
Speaker 1: the tracker and they don't realize we only took one
35:01
Speaker 1: of them over a year ago, fourteen months ago, and
35:04
Speaker 1: one of them about three and three quarter years ago,
35:07
Speaker 1: So that's been great. We changed the investment type to
35:11
Speaker 1: include SPACs, but right now they mainly own closed in funds,
35:14
Speaker 1: So I have a product which is closed in funds
35:16
Speaker 1: mainly of closed in funds. And what's kind of fun
35:19
Speaker 1: about that is I took their capital and now I
35:22
Speaker 1: have their capital working against them because I'm buying their
35:26
Speaker 1: own funds with that capital to then vote against management
35:30
Speaker 1: and hopefully get all of you and me anyvy. And
35:32
Speaker 1: that's been really fun again because I don't have to
35:35
Speaker 1: read the Wall Street Journal. I mean, I have other
35:38
Speaker 1: reasons to read it, but this is a space where like,
35:40
Speaker 1: can you turn eighty five cents back into a dollar?
35:43
Speaker 1: Or not, And it's it's just a it's it's it's
35:46
Speaker 1: not easy, but it's it's totally different than regular investing.
35:49
Speaker 3: So I want to sum up your part of your
35:52
Speaker 3: investing philosophy as a statement you once made, I don't
35:57
Speaker 3: make directional bets. I make miss price bets. And that's
36:02
Speaker 3: a huge change of perspective. How a lot of people
36:07
Speaker 3: in finance bet deep down inside? Doesn't that mean that
36:11
Speaker 3: you're just a value investors? Is that the space is?
36:15
Speaker 3: Are those the waters you swim in?
36:18
Speaker 2: Yeah? But I'm never well by the way.
36:21
Speaker 1: Those three funds you know, have beta to them, but
36:23
Speaker 1: most of my assets are are hedged, and I even
36:26
Speaker 1: managed tail protection money for different pension funds. I think
36:29
Speaker 1: people are a product of their vintage, you know, like
36:33
Speaker 1: when you hear about your grandfather grew up in the
36:34
Speaker 1: war and whatever and that's why he's all cranky or whatever.
36:37
Speaker 1: But you know, I grew up in a period of war.
36:39
Speaker 1: For the markets, I had a trading book in nineteen
36:42
Speaker 1: ninety eight, right when Russia was defaulting, and then like
36:44
Speaker 1: three years later was you know, Enron, and then was
36:46
Speaker 1: nine to eleven like two months after that, and six
36:48
Speaker 1: months after that was WORLDCLM. So, so my vintage was
36:52
Speaker 1: not to be directionally long, and it was not even
36:55
Speaker 1: in my makeup. It was more to be an arbit treasurer.
36:58
Speaker 1: Isn't that value? Yeah, arbitray is value. But I also
37:04
Speaker 1: think you have to find like your niche and where
37:06
Speaker 1: you're comfortable, and I'm most comfortable where a is mispriced
37:11
Speaker 1: to be and and I can actually put both legs
37:13
Speaker 1: of the trade on.
37:15
Speaker 3: So in the last two minutes or so we have
37:18
Speaker 3: I want to talk about your ETF because it's relatively
37:22
Speaker 3: new to see somebody with your background in that space
37:26
Speaker 3: ce f s. Who are the buyers of closed end
37:30
Speaker 3: funds ETF and what's what's the investment target? What are
37:35
Speaker 3: you looking to generate in a fund like that? And
37:38
Speaker 3: then what are the holdings?
37:40
Speaker 1: Yeah, so I'll be a little careful because I don't
37:43
Speaker 1: know exactly.
37:43
Speaker 2: I don't I don't want to market. Okay, you're you're,
37:45
Speaker 2: You're I'm asking question.
37:48
Speaker 3: I'm asking because I'm fascinated by this product. And anytime
37:52
Speaker 3: there's an opportunity to say to clients, hey, we're going
37:55
Speaker 3: to try and get you equity like returns with bond
37:59
Speaker 3: like risks, people sit up to pay attention. There aren't
38:02
Speaker 3: a lot of credible products from managers I could market
38:07
Speaker 3: for you. There aren't a lot of credible products from
38:09
Speaker 3: managers with as long a track record as you've amassed
38:13
Speaker 3: that people don't really know about. This is a relatively
38:17
Speaker 3: unknown product that really checks the bout.
38:20
Speaker 1: All right, And to just to as a disclaimer, we've
38:23
Speaker 1: owned it in some periods almost all fixed income, and
38:25
Speaker 1: now we happen to own mostly equities, so it's not
38:29
Speaker 1: bond like risk, it's bond and equity like risk. Let's say, so,
38:33
Speaker 1: we've seen it grow every year. We had no distribution plan,
38:35
Speaker 1: we had no distribution. It started with like a couple
38:38
Speaker 1: of million dollars and maybe it's now two hundred and
38:40
Speaker 1: fifty five or so. It gets creations every few days.
38:44
Speaker 1: So I think some value investors have thought to say, Okay,
38:46
Speaker 1: I know this is a space that's interesting, and I
38:49
Speaker 1: have to state your track record. And instead of buying
38:51
Speaker 1: it after I read that Saba about it, why don't
38:53
Speaker 1: I just give it to SABA and let them do
38:56
Speaker 1: their thing.
38:57
Speaker 2: That's the name of my firm.
38:59
Speaker 1: So so I think it's got a pretty dispersed shareholder base.
39:05
Speaker 1: These products have grown. There's one I think that Amplify has.
39:09
Speaker 1: I think to take her for that's wyy why And
39:11
Speaker 1: I think it grew over the same period more than
39:14
Speaker 1: we grew, and it again had you know, less than
39:16
Speaker 1: one third of the return that we had. So I
39:18
Speaker 1: do look at the market as highly inefficient. That you know,
39:21
Speaker 1: if you have somebody doing something for eight years and
39:23
Speaker 1: is very similar to someone else in one made twelve,
39:25
Speaker 1: one made four, it doesn't you would think by year
39:28
Speaker 1: seven or something, you know, you would start to out
39:31
Speaker 1: raise them. I'm not very focused on how big it
39:33
Speaker 1: gets because almost all of our AUM is in our
39:36
Speaker 1: hedge funds. I just think it's really neat to have
39:38
Speaker 1: a product that mom and pop can invest in that
39:40
Speaker 1: is no incentive fees. It has one hundred and ten
39:42
Speaker 1: bit management fee, just to say, because sometimes people get
39:44
Speaker 1: confused and the fact that the funds themselves borrow money
39:47
Speaker 1: at SOFUR and have their own fees that get impeded
39:50
Speaker 1: into our expense ratio. People get confused and think I've
39:53
Speaker 1: read it on Seeking Alpha that we charged five percent
39:55
Speaker 1: or something, but no, our fee is one hundred and
39:57
Speaker 1: ten BIPs. You don't even keep all of it because
39:59
Speaker 1: we are are if a firm that's helped us structure it.
40:04
Speaker 1: So I just think it's nice to have an ETF
40:07
Speaker 1: out there where people can get kind of sabalite if
40:09
Speaker 1: they want a lonely product. And so it holds mostly
40:14
Speaker 1: US equities through closed end funds of venerable managers like
40:18
Speaker 1: Blackrock and you know PIMCO.
40:21
Speaker 3: So, as Boaz discussed, he runs a hedge fund SABA Capital.
40:25
Speaker 3: It's about seven billion dollars, but he also runs an
40:29
Speaker 3: ETF of closed end funds. The stock symbol is cef S.
40:34
Speaker 3: It's a little over two hundred million dollars in assets.
40:37
Speaker 3: You get to participate in the same strategy, only in
40:42
Speaker 3: an ETF, not a hedge fund. Investors who are looking
40:48
Speaker 3: for relatively steady gains with modest volatility. The activist approach
40:54
Speaker 3: has proven successful in identifying closed end funds that are
40:59
Speaker 3: trading at a discount. This is one way you could
41:02
Speaker 3: get that exposure. I'm Barry red Halts. You've been listening
41:06
Speaker 3: to Bloomberg's at the month