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