March 26, 2025 • 41 mins
What happens when a fund is trading below its NAV (net asset value)? How can investors force management to allow the fund to trade back to fair value? Boaz Weinstein, founder and manager of Saba Capital Management, speaks with Barry Ritholtz about activist investing in closed end funds. His firm runs over $7 billion in client assets, and he manages the SABA Closed End Funds ETF (CEFS).
Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work.
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Speaker 1 (00:08):
Stand up, stand upright set up.
Speaker 2 (00:20):
This week an unconventional At the Money at future Proof Miami.
I sat down with Boaz Weinstein. He's a previous guest
on Masters in Business. He runs SABA Capital, and he's
one of these people that looks at the world a
little differently than everybody else. He identifies mispricings in real time,
(00:43):
and not only does he purchase various funds that are mispriced,
he then goes about agitating for change. One of the
areas that he had been doing this with in the
past was spas, and we've talked about that on our
previous recording with him. Lately, he has been agitating for
(01:03):
change in closed end funds that are trading at double
digit discounts to fair value. A closed end fund trades
like an ETF, but it's constructed of holdings like a
mutual fund, and the actual closed end fund will trade
up or down simply in response to trading supply and demand. Anyway,
(01:29):
rather than have me babbel, here is our extra special
edition live from future Proof Miami At the Money with
Boaz Weinstein. So let's start talking a little bit about
what you actually do. You have been delivering equity like
returns with credit like risks, with bond like risks. That's
(01:51):
quite a trick. Tell us a little bit about the
areas you focus on.
Speaker 3 (01:56):
Sure, So I've had my firm for sixteen years to
hedge fund and we have three publicly listed vehicles, one
of them being an ETF, and two closed end funds
on the New York Stock Exchange. And and I've been
working on Wall Street continuously other than when I was
in school, since I was sixteen. And you know, over
(02:18):
that time, I've had the chance to be right sometimes
wrong sometimes and also seeing how people that were right
for a while, and you know, people worshiped to Garzarelly
or copy Wood or you know whoever the flavor of
the of the period was. But eventually we realize how
hard it is to know where the markets are going
(02:40):
to go. And and sometimes we excuse ourselves because we say, Okay,
it was a surprise, it was nine to eleven, or
it was COVID, But predicting the markets is really tough.
And and you know, I say this, We've been in
a bull market, so beta has paid off, but it's
not always going to And I always was very focused
on arbitrage. I was always interested in miss pricings, not
(03:03):
having the beta being long one thing short another thing,
looking for miss pricings, whether it was in the spack
market when they tumbled and they had bond like risk,
as you said, with some equity upside, when they were
trading below their redeemable value and they were in T bills,
and about ten years ago, twelve years ago. Now I
(03:24):
got very interested in a product that many of view
in the audience are familiar with because it's a retail product,
which is closed end funds. Now, if I asked for hands,
who knows what a closed in fund is? I think
almost everyone's. I didn't even ask, and that guy stuck
his hand up. Okay, so people know what they are.
I just want to just take a second, though, because
what I love about what we do in closed end
(03:45):
funds is that it does not require us to think
we know the future, the direction of markets. But as
you all probably know, there's about five hundred of them,
about half are in the UK, half are in the US,
small number in Australia and Canada. And often they own
public securities, maybe entirely public. Sometimes they own illiquid private securities, reads,
(04:10):
private equity, music, royalties, all sorts of exotic things. But
I've been focused on the public security side. So funds
we see actually the sponsors of them right here front
and center. We have Blackrock, we have Devine has dozens
of UNI funds. Blackrock has about eighty of these closed
end funds. And you can check every day on Bloomberg
or elsewhere what the NAV is, and there is no
(04:32):
disputing what the NAV is. The NAV is calculated off
of the closing price, so all of us would agree
with the NAV is. So you have the NAV, you
have the price, and those two things are often not
the same. And when the NAV is at a big discount,
it isn't necessarily an opportunity Barry, because it can stay
at that discount for a decade. Why should it not
become a bigger discount. Who's to say that that's money
(04:54):
well spent. Maybe the discount reflects the manager's fees and
the investors' inability to change. So what we've done is
we've come in with an institutional great offering, be it
our private funds or our publicly listed funds, and we
bought seven billion of closed end funds. So we're the
world's largest owner of closed end funds, And we didn't
(05:15):
just buy seven billion willy nilly. We pick the ones
with the biggest discounts, with the best language, with the
managers that are going to be most in our view
likely to do a deal. Because here's the where the
rubber meets the road. If you buy a dollar of
nav for eighty six cents, and even if it takes
you two years to turn eighty six back into one hundred,
(05:35):
you have added equity like returns on top of whatever
the underlying return is. And sometimes underlying return is it's
Muni's you know, it's things we want. And so what
I found over time is that the bigger we got,
the more votes we got, and the more we got
management to take steps. And I'll pause in a second,
give you the microphone back to press a button and
(05:57):
immediately give everyone eighty six back into a hundred. What
are those steps? Open end a closed end fund, make
it into like an ETF or a mutual fund. The
discount disappears overnight.
Speaker 2 (06:08):
And that's because of the arbitrage opportunity.
Speaker 3 (06:11):
That's because yeah, ETFs are redeemable. There, you can create them,
you can redeem them. Mutual funds have the manager has
to sell and give you navback, and so open ending
a closed end fund, no one disputes, will give the
entire discount back to the investor who has suffered in it,
if they bought it at IPO or otherwise. And so
if you think about it, we're not talking about small potatoes.
(06:32):
Eighty six to one hundred, by the way, is more
than fourteen percent, and I think you all know why
one hundred to eighty six is fourteen percent. So you
know we have been successful in getting it done faster
and faster because as we went from a billion to
three to five to seven, our ability to vote the
bums out as they say if they don't do what's
right for shareholders and put in a board that will
(06:54):
is now causing managers to increasingly take practice steps to
narrow the discounts before we ever get to their their
board meeting.
Speaker 2 (07:00):
So let's talk a little bit about that move from
two billion to seven billion. When I had you on
Master's in business, you had a chunk of money in spacks,
and we could talk about spacks a little later, and
you had a chunk of money in closed end funds,
and part of the conversation was the difficulty in getting
(07:22):
entrench management's attention to say, hey, why are you selling
dollar bills for seventy five cents? Why aren't you unlocking
this value? Tell us the process that led you to
go from two billion in closed end funds to seven billion.
Speaker 3 (07:37):
Right so, and unfortunately they're not the ones selling a
dollar for eighty five cents. It's the frustrated shareholder that
has seen it sit there and they have no way
to get back to a dollar without without us because
they're small investors. And so over time we started to
get more successful at it. Thanks for mentioning, you know,
we got these kind of institutional awards and all of
(07:58):
a sudden, institution US state pensions looked at this as an.
Speaker 1 (08:03):
Alpha that they don't have in their portfolio.
Speaker 3 (08:06):
So, you know, if they give us an often institutional
ticket is over one hundred million dollars if we from
a state pension we got four of them in the
last two years. It allows us to get bigger, faster, stronger,
so that we don't have to have a fifteen percent
position in the fund. If we have a twenty nine
percent position in the fund. Management is very worried that
(08:26):
we'll be able to cause the fund to liquidate and
they would lose one hundred percent. And so basically they
know that something screwed up that they could have given
up a little bit of fees to shrink the fund
buy back stock, buying back a dollar for eighty eight
cents is a creative to make their investors' money. But
it's always really a question of you know, greed, where
(08:47):
the manager says, I.
Speaker 1 (08:49):
Don't want to do that.
Speaker 3 (08:50):
People should be patient, whether it's been a year or
five years, and they don't want to shrink their fund.
And if they wait too long, I'm going to shrink
their fund for them in a much more severe way.
And in two kse is, actually we replaced the manager
and we were nominated awarded with the mandate. So we
now run two of these funds. We have two closed
end funds of closed end funds, and so you know,
(09:13):
it's really just like a fight between two asset managers
that have a vested interest in themselves. But also I'm
invested alongside the shareholders. I want what they want. I
want a chance to exit at an ev if the
investor doesn't want to, if you open end the fund
and they stay, great if they if the manager tenders
for shares at NAV and you don't want a tender
for some reason, your loss great. But my view is
(09:37):
that just because this thing iPod in nineteen forty nine,
by the way, there's one in the UK iPod eighteen
fifty five. Just because at iPod in eighteen fifty five
doesn't mean until three thousand and fifty five the shareholder
has to suffer under the discount because they signed up
to have to elect a board, and the board is
supposed to be working for shareholders. And what I find
(09:59):
as a patriotic American capitalist is that over in the
UK the boards have not forgotten that they're working for shareholders,
much more than in the US, where often we have
to face entrenchment. One of the things we have to
do that our shareholders don't is pay legal bills and
go to court as we as we have successfully suing
for our right, for example, to vote all of our shares.
(10:21):
So it is a scrappy fight. But in about eighty
instances now we have gotten management to give investors a
chance to exit at any v or close, which they
never ever would have done without us.
Speaker 2 (10:35):
And the returns of a closed end fund that looks
like a sixty forty portfolio, you've been generating returns of
about twelve percent, and a lot of these products, your competitors,
the other activists in the space, have been underperforming that.
They've been doing about four percent, which doesn't seem especially exciting.
(10:57):
What are you guys doing so differently with closed end
fund challenges that has led to this the track record
and the success sabas put together.
Speaker 3 (11:07):
Yeah, so I think you're referring to our ETF. The
ticker is CEFS like closed in funds pleteral. And actually
those other competitor products are not activists. They're in fact
not you know, it's not that they're sometimes they're just
trying to find closed in funds they like, or maybe
it's more like an index approach to closed in funds.
(11:28):
And if you buy a closed in fund at minus
fourteen and a year later it's still a minus fourteen,
or you've paid the manager of their fee, You've also
charged your investor of the fee, so you have kind
of two layers of fees. So you better be narrowing
that discount or you're you're not delivering alpha, and so
not some of them are here, by the way, Invesco
has a product called PCEF. And what I also find
interesting in this space is that it's so retail centric.
(11:52):
And you know, if Morgan Stanley Wealth Management has recommended PCEF,
it will grow more even at making four percent a
year than then the same underlying clothed in funds making
twelve percent a year. So I think PIECEF probably has
grown more than us in the last five We're actually
celebrating our eighth anniversary of this ETF. And so yeah,
so if you're not. If you own one hundred clothes
(12:14):
in funds and the only ones that are narrowing are
the ones sabas in, you're gonna have a pretty mediocre
return after fees or all of ours. I do not
buy a closed in fund where I feel like, if
it doesn't narrow, I'm not going to go to management
and say, please, you have easy steps to make it narrow.
Do not put your own greed in front of your shareholders.
Speaker 2 (12:34):
You just had an interview in the Financial Times last month,
and I love the quote, I love punching a bully
in the nose. Tell us what you were doing in
the UK and why the Financial Times decided to have
a sit down.
Speaker 1 (12:48):
With you so.
Speaker 3 (12:52):
In the UK the market is even older than it
is here, and it's actually like there's a lot of
pride about They're called investment try there it's I think
forty percent of the foot seed two fifty or these
investment trusts. People seem to like them. They get to
go every year and sit in a meeting and hear
about the economy and have a have a ribbi and
you know, even if the manager has underperformed or outperformed,
(13:15):
there is a lot of love for the product. But
what happened was in twenty twenty one when we had
inflation and we had a crisis in the UK, the
LDI crisis, and people were selling things. And then later
even in twenty twenty four, they increased capital gains taxes
and it caused people to want to sell in front
of that before the new tax code. And the problem
(13:37):
with these products is they don't have natural buyers at
low discounts. Only really savvy investors that look for a
double digit discount are there to buy them. So they
can fall like a knife from minus one to minus
thirteen and with enough selling, no matter how big we are,
even at seven billion in a five hundred billion space,
you know that that discount can grow. So in the
(13:58):
UK there was a lot of sell thanks to these
two problems, and we ramped up and we bought twenty
nine percent positions and some of these funds, and only
then were they willing to do things that.
Speaker 1 (14:12):
They are now. We're now currently engaged.
Speaker 3 (14:14):
It's in the press with four of the boards and
two of the other boards have already agreed. We're going
to give investors a cash option to exit an NAV
open end or tender, and that's what we wanted. If
you want to keep your if you want to keep
getting your your steak dinner every year, and you want
to stay in your closed in fund, whether it's underperformed
by forty or outperformed by eight, which were two actual
funds in question. Fine, but there is a set of shareholders,
(14:38):
not just us, that if you offer them a chance
to get out at an av they will take it
because they're not foolish. They'll make a twelve percent gain.
Your portfolio literally goes up by twelve thirteen percent in
a day if it wasn't if it was instantaneous. And
then you take that money and you do something else
savvy with it. You buy another closed in fund at
a discount, or you buy an open ended fun So
(14:58):
you know, to no one in this audience, will it
be a surprise that if you offer someone a free
thirteen percent with no consequences, they're going to want to
take it. But it took me getting to twenty nine
percent for the managers to want to do something about it.
And so I sent a letter on December eighteenth to
seven of them at the same time, saying, and you
have the right in the UK with a position size
(15:19):
above five percent to call an annual board meeting and
they have to hear they have to vote on any proposal.
And I sent a letter to seven funds and my
proposal was replace all of you and replace them with us.
So it was very aggressive, and they closed ranks. They
did all sorts of things to get the vote out.
They did phone voting. Can you imagine an election where
(15:40):
you call on the phone and you say, I don't
even know what they said. They said, we think it's
better if you vote against SABA and vote with your manager.
Do you want to do that? I don't know if
they got the right person on the phone. I don't
know if they gave me a fair hearing, but they
actually took phone votes as the main way to reach
their holders, and they defeated us on that proposal. And
then the telegraph said we need to send that American
(16:01):
home with his tail between his legs. And then somebody wrote, Okay,
he stuck. What's he going to do?
Speaker 1 (16:05):
He lost?
Speaker 3 (16:06):
What's he going to do? And I'm like, I'm not stuck.
You're stuck because now everyone knows the score is, let's
say forty two to thirty. You got forty two percent
of the vote, We got thirty. If some of you
in the audience buy this fund at minus ten, I'm
not a group with you. You go and buy it
at minus ten because you want the discount to close.
If collectively the arbitragures of the world buy ten percent
(16:27):
of it, my thirty is forty there, forty two is
thirty two or thirty three if they buy some unvoted chairs.
So we're in this kind of very uncomfortable spot right now.
This is very recent where there's these funds sitting out
there and everyone knows the distance between us losing in
us winning, and so I'm in negotiations with them, but
(16:47):
just to say, because what are we talking about is
it small potatoes? There is thirteen billion pounds on in
the UK market of just publicly traded underlyings, no ill
liquids where you worry about the NAV one hundred percent public,
ninety nine percent public. Is thirteen billion pounds of trapped discount.
So if somebody snapped their fingers, Charlie Munger rest in peace, Emperor.
(17:07):
The world's kind of conversation. If you opened all closed
end funds that are just public, the British pensioner and
some institutions would be up thirteen billion pounds, the same
kind of number in the US. So we're talking about real,
real money.
Speaker 2 (17:20):
So it's thirteen billion there, about thirteen billion here. It's
kind of unfathomable that the efficient market has not found
a way to close that gap, unless you're the actor
that is on behalf of the efficient market arbitraging the gap.
Tell us a little bit, why all this money's lying
(17:44):
around and nobody else has come up and closed this
discount yet.
Speaker 3 (17:49):
Well, so activism is hard. You make enemies. I don't
need to be Nuvine's friend. They're down, they're down the way.
Speaker 1 (17:55):
When when we had maybe there's someone here from Newvine
so I can someone's okay.
Speaker 3 (18:02):
Fine, So here's what Nuvine did. Federal law in the
Investment Company Act passing Congress in nineteen forty says, every
share gets to vote. Every share gets to vote. Sound good,
Every share gets to vote. The lobbying industry for the industry,
got in state law something that says, well, they can
(18:22):
limit your vote because no one investors should have an
undue influence. You know, like we had federal lobbying different
than state law for whatever, for marijuana, for whatever it is.
You can have these at odds, and they limited our vote.
We had like twenty percent of a fund. They'll let
us vote nine point nine nine. So we went to
court and the judge did not need to hear the case.
The judge decided on summary judgment that Nouvene had broken
(18:43):
the law and that they hurt our ability to vote
all our shares. And Nuveene appealed and the appellate court
rejected unanimously Nuvine's appeal. And then a different manager did
the same thing and we had to take that manager
to court. So you know, it's to answer your question,
it's not easy. You have to be willing to roll
up your sleeves and pay legal bills and fight, you
(19:05):
know those kinds of battles. You're not just paying for
one fight. It could affect the next fifty, right if
you can get the law to change, you know, to
be clear. So not everyone's willing to be activists, and
the activists are not so happy to run a foul
of the managers who they need. If you think about
an amazing manager like Blackrock, the Biggest right, why would
it make sense for an activist to fight with Blackrock
(19:28):
about their own closed end funds if they need to
go and lobby them on Disney or you know whatever, Nestley,
whatever it may be. So I'm in this weird place
where I'm willing to just be an activist in my
own space and asset management. And then it's not really
an arbitrage barry because these funds can stay it discounts
for decades unless someone is going to go, you know,
(19:49):
go to the mat and have the buying power to
get there. They are not arbitrage is they're actually and
you're you're right, I mean a lot of there's been
papers by Nobel Laureate economics professors in Chicago about the
puzzle of the closed in fund discount. But it's not
really a puzzle if you don't have a mechanism to
(20:10):
narrow it, and you do the mechanism to elect a
board and right now, the industry went to the New
York Stock Exchange right now meeting the last year, and said, oh,
we don't need those board meetings anymore. And they convinced
the New York Stock Exchange to put forward a proposal
to say the board meeting is not mandatory, even though
it'd been like around for ninety years. And they kind
(20:33):
of trick them by saying, well, we did this for ETFs,
but ETFs, you don't need an annual board meeting because
you can always vote with your feet and exit at
NAV and closed in funds are very different. You need
your voice, you need the ability to elect a board.
So the SEC put out a twelve page paper saying
this is not going to fly, and now they're coming
back with Trinevan, a new proposal. The NYC hasn't decided
(20:55):
yet on it, but basically it's a very tough fight.
But it's a big fight because we're talking billions and
billions of dollars even and just recently we made a
very nice deal, mutually beneficial deal with Blackrock. We love
Blackrock now they love us, and and and So the
next day two tickers Bim Easy and Big Z, two tickers.
(21:17):
The very next day, someone's giving me a fist pump.
Do you own those tickers? Okay? Well morphas Oh I
got okay. So the very next day, those two tickers
combined market value was up two hundred million dollars. So
if you think about like somebody goes to McKinsey and
they're going to try to tweak, you know, please help
our company do like you made two hundred million dollars
(21:38):
because they announced a buy back tender. So there is
enormous sums of money that that gentleman and that gentleman
and this semi gentleman can can can achieve by buying discounts.
It's not that complicated. It's so much easier than what
you know, Stan Druckemeler, you know, does you buy discounts
and you buy them over and over and over again,
(21:58):
and then you have shares and then you vote them
if they don't do something about it. And more and
more the managers are doing something about it. So I
wanted to say to all of you, for those of
you who are not invested in this space, that it is
I think an enormous opportunity, especially when markets are a
little bit expensive to a lot expensive, to try to
earn a a very nice return from something that doesn't
(22:19):
require the market to go up.
Speaker 2 (22:21):
So I want to talk a couple of things about that.
I want to talk about what you're buying, but I
also want to talk about the difference from when you're
a two billion dollar NAT annoying the big closed end
funds to a seven billion dollar Hey, we could take
a substantial position in this fund. We could take fifty
one percent.
Speaker 1 (22:40):
And vote you out.
Speaker 2 (22:42):
Tell us how the process has changed as you've accumulated
more assets under management. Are they taking you more seriously?
The fact that Blackrock cut a mutually beneficial deal with
you sounds like, oh, boaz is kind of a pain.
Let's just let's just hear them out. Has it changed
(23:03):
over the past decade?
Speaker 3 (23:05):
Well, look, they know that they their shareolders made two
hundred million dollars the next day. And actually that's not
even all of it, because the act of tendering is
not even hasn't even occurred. So it was like an
initial gain and then there's some more gain to come
between the end of this month and I think May
or June for the second fund, so it's real sums
of money.
Speaker 1 (23:23):
They can look good. We had a very.
Speaker 3 (23:26):
Actually very professional negotiation with them, and we're very happy
with the tone in both directions. So what they are
doing separate from us is I think they've decided that
these discounts are not worth the damage to the brand.
I'm not talking about that manager particularly, there are a
couple of managers who are now doing things like if
(23:47):
you look at the yield on closed in funds one
year ago or a year and a half ago versus now,
it actually went up three hundred basis points even though
rates didn't go up. The reason they went up three
hundred basis points is the manager decided to bump up
the distribution. And I'm of two minds about it, because
there are some funds that used to have a six
percent distribution and went all the way to twenty or fourteen.
Speaker 1 (24:10):
So it seems a little bit like.
Speaker 3 (24:13):
A little bit I don't know what the word is,
but like if one day you're able to pay six
then all of a sudden you're able to pay twenty.
Do you think that the dentist, the really nice dentist
who you know, has a chain of dental establishments, understands
that that fourteen is a return of your own money.
Could you put a dollar in the assets are only
earning six, they're giving you six, but then the next
(24:34):
day they're starting to give you twenty. What's that fourteen?
That fourteen is your own dollar coming back to you.
And what happens is and you guys will know this.
People will go in morning Star and they'll sort by
yields and we'll say, amazing, look at this manager, and
I get to have twenty percent, and I get to
have growth equities. Sounds like the greatest thing ever. And
they will bid up those closed in funds and the
discount starts to go away. And there's some of them
(24:55):
that even traded a premium, and so that's all fine,
but they're there's no alchemy in finance. And at some point,
if they cut that dividend again, you can have a
fifteen percent loss, twenty percent loss in a single day.
Otherwise that fund is just going to shrink and shrink
and shrink, because it's shrinking by that fourteen every year.
So so, but just to say, managers now are taking
steps without us to return capital to investors at an
(25:17):
ev through over dividending, through tendering, through other discount management plans,
and in the UK, to their credit, they actually are
replacing managers that have underperformed with better managers and that
can cause the funds to trade better. So so I
like it because it helps my existing portfolio. You know,
I do wonder, well, what if this whole thing goes away?
(25:38):
You know, that's kind of an interesting topic, but it's
been around for this discount for a century. I don't
think even with these steps, I don't think it's going away.
Speaker 2 (25:46):
And what are in these closed end funds?
Speaker 1 (25:48):
Is it bonds?
Speaker 2 (25:49):
Is it equities? Is it convertibles? What are the publicly
traded and traded holdings that these closed end funds tend
to hold?
Speaker 3 (25:58):
Right, So I'm not going to recommend my own fund overtly.
I'm gonna do it telepathically to all of you, okay,
because I can't overtly tell you to go invest, you know,
just let me do it and you relax at the beach.
But I'm going to recommend another fund because I do
want to give a ticker. You know, it's kind of
the right, you know, nice thing to do, and it's
actually a fun I recommended some months ago at Grants.
(26:20):
I spoke at Jim Grant's like conference, and at the
time we had a two percent position, so we were
really quite small, but I didn't mind recommending it, even
though we're buying it. We now have a seven percent position,
and the ticker is g DV like gold does vary.
I don't know someone have a better one from that.
And it's a Gabelly fund. And Gabelly has a number
(26:42):
of funds that traded premiums to NAV. What premiums TENAV like,
you know, even one of them has a sixty percent premium,
so you can have funds at premiums also, which is
another story. But this fund's at a double digit discount.
It's at a thirteen discount. So you have a fund
whose biggest holding is American Express, it's got JP Morgan,
it's got Google. I believe, it's got those kinds of stocks.
(27:04):
And it's three billion. But if it was at NAV,
it would be thirty it would be fourteen percent more
than three billion, So you were talking literally about four
hundred million dollars to shareholders if it was open ended
or if they somehow found a way to erase the discounts.
So I like it because it's nice to be able
to take a two hundred million dollar position in something,
(27:24):
and we have positions as big as four hundred and
fifty million single funds. But so that's one that you
know a lot of people here could buy at minus thirteen.
You like the portfolio. The fees are high because these
fees were set long ago. There are about one hundred
and twenty BIPs, so I have to think about that.
But there is a lot to do in the US
and the UK right now, especially because the speed at
which we're narrowing discounts has gone faster.
Speaker 2 (27:48):
So you mentioned you just alluded to something I want
to follow up on. There are five hundred or so
closed end funds between the US and the UK. About
if I recall you saying this correctly, about one hundred
of them trade at a double digit discount to NAV
How long can this go on for? Are you gonna
(28:10):
put yourself out of business by creating all this value
or is this something that is going to persist forever?
Speaker 3 (28:17):
So when these funds are not trading in discounts. The
market can grow. They do secondary offerings, they bring new
IPOs for that new hottest esg. You know, tech, whatever
it may be, whatever the the thing that is sellable,
and and so there there have been a shrinkage in
the number of funds, but that's generally because of merger.
(28:40):
I don't believe I'm gonna put myself out of business
because because as much as big as we are at
seven billion, again it's five hundred, so we're now we
are seven out of a much smaller set of interesting funds.
But lo and behold, if the market sells off, you know,
I'm not gonna be able to keep to keep it
from from selling off in my names either. And like
(29:01):
when twenty twenty happened, all of a sudden, almost every
fund was interesting. And that's the thing is if a
funds at minus fourteen and you have a big sell off, yeah,
I can go to minus twenty usually comes back pretty quickly.
If it's at minus one and you have a big
sell off, it can go to minus twenty just as quickly.
And so there isn't a safety net where you would
(29:22):
have people to catch it, you know, people say, wow,
at minus six sixteen seventeen, I like it even more so.
I do think all sorts of funds that we were
historically activist in or not one of them. By the way,
it's a fun we were activist in that we shrunk
it shrunk. It's trading now at plus one, and they've
done two rights offerings. They've grown that fund. So I
(29:42):
think the industry when it's not at a discount, can issue.
When it is at a discount, it needs us even more.
And we also, even when it's in the normal state,
are cleaning up the weakest, biggest discounts. And I think,
you know, ironically, we're in some ways an ally of
the industry, even as an activist, because we're making it
possible for them to bring new funds. You all obviously
(30:03):
followed the saga of Bill Ackman trying to bring a
twenty five billion dollar closed INN fund. If you, you know,
think about location, location, location for real estate, what is
the reason why he couldn't bring a twenty five billion
or even a much smaller closed n fund discount discount discount.
People were worried, if I buy it at IPO, what
if it goes to a discount, I'll look silly. What's
the mechanism to stop it from going to one hundred
(30:25):
to ninety? And maybe that's even not an unlikely case.
And so the protecting against the discount having a having
a discount management policy. If it ever gets to X,
I'll buy it back, that kind of thing. I think
that's the way forward for the industry to be able
to issue more of these things. But it is challenged
because you all know as well as I do about
(30:46):
actively managed mutual funds, low cost ttfs, and so you know,
there is some theory, Like when Heard on the Street
wrote about my case in London, the journalist is basically like,
what do we need these things for now? That offended
a lot out of the UK market. Some of them
are not needed, Some of them that have truly liquid
assets are needed because an ETF would be the wrong
rapper for it. So I do think there is a
(31:08):
home for closed end funds, and I can't get enough
of them. I like, really, for twelve years, have just
been interested in the house and wise it changes what regions,
what product types. Right now, the most interesting are equities
you're asking, you know, just run of the mill public equities,
and the UK is more interesting on average because the
(31:31):
governance is better.
Speaker 2 (31:33):
So look the name of your ETF. The symbol is
CEFS closed end funds. But you ended up taking over
to closed end funds yourself as managers. Tell us about those?
How did you end up running these? And what's the
performance been?
Speaker 1 (31:52):
Like?
Speaker 2 (31:52):
What's the discount look like today?
Speaker 3 (31:55):
So there is a manager Voya that had a fund.
Seeing some heads nod, and we bought twenty four percent
of the fund. There was an election coming up, and
some days before the election, they announced that for the
better of shareholders, they thought the board thought that instead
of us just needing the majority of the votes, which
(32:18):
is usually I think about elections, you know, we would
need sixty percent. But it wasn't even only that. We
wouldn't need sixty percent of the votes. We would need
sixty percent of all shares voted or unvoted. And I
think they got something like fifty six percent to vote,
so we would needed like sixty We needed more than
every vote. Okay, So we took them to court. It
(32:38):
was in Arizona. And you know it's always funny, like
if you've been in legal disputes and discovery, you're like,
wait a second, how would you do that? Knowing that
we would get to see the source documents, and there
was some documentation that they were worried about losing the
AUM to our action, and it was really too entrench
(33:00):
which the board is supposed to be working for shareholders.
It seems like they're working for Voya. So we took
them to court and we won, and Voya resigned as
manager and they said they'll stay as manager until we
can find a new one, and we changed the mandate Barry.
It was all hygold loans, and in a very opportune time,
we sold all high old loans between June of twenty
one when we took it over and the start of
(33:21):
the twenty twenty two bear market, and we replaced it
even yield. So sell a single B loan or a
double B loan at three fifty over library it was
called at the time, and sell it at three fifty over,
and then buy a spack at three fifty over because
they were trading at a three and a half point
discount to their one year maturity date, and you would
(33:44):
basically still earn your three fifty but you would have
gone from single double B loans to triple at bills
in a box at you know, JP Morgan or Bank America.
And then twenty twenty two appened and we were out
of two hundred and fifty seven closed in funds, we
were the number one performer. So we got very lucky.
I'm not going to be able to do that magic
trick again. And you know, I would have been very
happy to be twenty fifth out of two fifty, but
(34:04):
instead we were first. So you know, it did not change.
Our fund is still trading at a discount, trading at
like a one of them's at a seven, one of
them is at a nine, but single digit discounts. But
but I want to tell you is that my general
counsel said, I'm going to spare you the second story.
Do we really want to run one of these? Because
what if we do badly and what if they say,
you see, it's not so easy? And I said, I
(34:25):
really want to run it to show that there is
a better way. I'm going to change the governance how
votes are cast to be friendly to the shareholder. So
it used to be that let's say the election was staggered,
We're going to do it all in one year, so
you can you can get us all out in one period,
change change it in other ways, and we're going to
offer shareholders and exit near nav and we did that
(34:47):
in both funds, so something that you know, we're often
not able to get the managers to do with that coercion.
So so I run two funds. The tickers are SABA
and BRW and but you know, sometimes people look at
the tracker and they don't realize we only took one
of them over a year ago, fourteen months ago, and
one of them about three and three quarter years ago,
(35:07):
So that's been great. We changed the investment type to
include SPACs, but right now they mainly own closed in funds,
So I have a product which is closed in funds
mainly of closed end funds. And what's kind of fun
about that is I took their capital and now I
have their capital working against them because I'm buying their
own funds with that capital to then vote against management
(35:30):
and hopefully get all of you and me anyvy. And
that's been really fun again because I don't have to
read the Wall Street Journal. I mean, I have other
reasons to read it, but this is a space where like,
can you turn eighty five cents back? Into a dollar
or not. And it's it's just a it's it's it's
not easy, but it's it's totally different than regular investing.
Speaker 2 (35:49):
So I want to sum up your part of your
investing philosophy as a statement you once made, I don't
make directional bets. I make miss price bets. And that's
a huge change of perspective. How a lot of people
in finance bet deep down inside? Doesn't that mean that
(36:11):
you're just a value investors? Is that the space is?
Are those the waters you swim in?
Speaker 1 (36:18):
Yeah? But I'm never well by the way.
Speaker 3 (36:21):
Those three funds you know, have beta to them, but
most of my assets are are hedged, and I even
managed tail protection money for different pension funds. I think
people are a product of their vintage, you know, like
when you hear about your grandfather grew up in the
war and whatever and that's why he's all cranky or whatever.
But you know, I grew up in a period of war.
For the markets, I had a trading book in nineteen
(36:41):
ninety eight, right when Russia was defaulting, and then like
three years later was you know, Enron, and then was
nine to eleven like two months after that, and six
months after that was WORLDCLM. So, so my vintage was
not to be directionally long, and it was not even
in my makeup. It was more to be an arbit treasurer.
Isn't that value?
Speaker 1 (36:59):
Yeah?
Speaker 3 (36:59):
Arbitray is value. But I also think you have to
find like your niche and where you're comfortable, and I'm
most comfortable where a is mispriced to be and and
I can actually put both legs of the trade on.
Speaker 2 (37:15):
So in the last two minutes or so we have
I want to talk about your ETF because it's relatively
new to see somebody with your background in that space
ce f s. Who are the buyers of closed end
funds ETF and what's what's the investment target? What are
(37:35):
you looking to generate in a fund like that? And
then what are the holdings?
Speaker 3 (37:40):
Yeah, so I'll be a little careful because I don't
know exactly.
Speaker 1 (37:43):
I don't I don't want to market. Okay, you're you're
You're I'm asking question.
Speaker 2 (37:48):
I'm asking because I'm fascinated by this product. And anytime
there's an opportunity to say to clients, hey, we're going
to try and get you equity like returns with bond
like risks, people sit up and pay attention. There aren't
a lot of credible products from managers I could market
for you. There aren't a lot of credible products from
(38:09):
managers with as long a track record as you've amassed
that people don't really know about. This is a relatively
unknown product that really checks.
Speaker 1 (38:19):
The bout all right.
Speaker 3 (38:20):
And to just to as a disclaimer, we've owned it
in some periods almost all fixed income, and now we
happen to own mostly equities, so it's not bond like risk,
it's bond and equity like risk. Let's say, so, we've
seen it grow every year. We had no distribution plan,
we had no distribution.
Speaker 1 (38:37):
It started with like a.
Speaker 3 (38:38):
Couple of million dollars and maybe it's now two hundred
and fifty five or so. It gets creations every few days.
So I think some value investors have thought to say, Okay,
I know this is a space that's interesting, and I
have the state your track record, and instead of buying
it after I read that SABA about it, why don't
I just give it to SABA and let them do
their thing.
Speaker 1 (38:57):
That's the name of my firm.
Speaker 3 (38:59):
So so I think it's got a pretty dispersed shareholder base.
These products have grown. There's one I think that Amplify has.
I think to take her for that's wyy why And
I think it grew over the same period more than
we grew, and it again had you know, less than
one third of the return that we had. So I
do look at the market as highly inefficient. That you know,
(39:21):
if you have somebody doing something for eight years and
is very similar to someone else and one made twelve,
one made four, it doesn't you would think by year
seven or something, you know, you would start to out
raise them. I'm not very focused on how big it
gets because almost all of our AUM is in our
hedge funds. I just think it's really neat to have
a product that mom and pop can invest in that
is no incentive fees. It has one hundred and ten
(39:42):
bit management fee, just to say, because sometimes people get
confused and the fact that the funds themselves borrow money
at SOFUR and have their own fees that get impeded
into our expense ratio. People get confused and think I've
read it on Seeking Alpha that we charge five percent
or something, but no, our fee is one hundred and
ten BIPs. You don't even keep all of it because
we are are if a firm that's helped us structure it.
(40:04):
So I just think it's nice to have an ETF
out there where people can get kind of sabalite if
they want a lonely product. And so it holds mostly
US equities through closed end funds of venerable managers like
Blackrock and you know PIMCO.
Speaker 2 (40:21):
So, as Boaz discussed, he runs a hedge fund SABA Capital.
It's about seven billion dollars, but he also runs an
ETF of closed end funds. The stock symbol is cef S.
It's a little over two hundred million dollars in assets.
You get to participate in the same strategy, only in
(40:42):
an ETF, not a hedge fund. Investors who are looking
for relatively steady gains with modest volatility. The activist approach
has proven successful in identifying closed end funds that are
trading at a discount. This is one way you could
(41:02):
get that exposure. I'm Barry red Halts. You've been listening
to Bloomberg's at the month
Stand up, stand upright set up.
Speaker 2 (00:20):
This week an unconventional At the Money at future Proof Miami.
I sat down with Boaz Weinstein. He's a previous guest
on Masters in Business. He runs SABA Capital, and he's
one of these people that looks at the world a
little differently than everybody else. He identifies mispricings in real time,
(00:43):
and not only does he purchase various funds that are mispriced,
he then goes about agitating for change. One of the
areas that he had been doing this with in the
past was spas, and we've talked about that on our
previous recording with him. Lately, he has been agitating for
(01:03):
change in closed end funds that are trading at double
digit discounts to fair value. A closed end fund trades
like an ETF, but it's constructed of holdings like a
mutual fund, and the actual closed end fund will trade
up or down simply in response to trading supply and demand. Anyway,
(01:29):
rather than have me babbel, here is our extra special
edition live from future Proof Miami At the Money with
Boaz Weinstein. So let's start talking a little bit about
what you actually do. You have been delivering equity like
returns with credit like risks, with bond like risks. That's
(01:51):
quite a trick. Tell us a little bit about the
areas you focus on.
Speaker 3 (01:56):
Sure, So I've had my firm for sixteen years to
hedge fund and we have three publicly listed vehicles, one
of them being an ETF, and two closed end funds
on the New York Stock Exchange. And and I've been
working on Wall Street continuously other than when I was
in school, since I was sixteen. And you know, over
(02:18):
that time, I've had the chance to be right sometimes
wrong sometimes and also seeing how people that were right
for a while, and you know, people worshiped to Garzarelly
or copy Wood or you know whoever the flavor of
the of the period was. But eventually we realize how
hard it is to know where the markets are going
(02:40):
to go. And and sometimes we excuse ourselves because we say, Okay,
it was a surprise, it was nine to eleven, or
it was COVID, But predicting the markets is really tough.
And and you know, I say this, We've been in
a bull market, so beta has paid off, but it's
not always going to And I always was very focused
on arbitrage. I was always interested in miss pricings, not
(03:03):
having the beta being long one thing short another thing,
looking for miss pricings, whether it was in the spack
market when they tumbled and they had bond like risk,
as you said, with some equity upside, when they were
trading below their redeemable value and they were in T bills,
and about ten years ago, twelve years ago. Now I
(03:24):
got very interested in a product that many of view
in the audience are familiar with because it's a retail product,
which is closed end funds. Now, if I asked for hands,
who knows what a closed in fund is? I think
almost everyone's. I didn't even ask, and that guy stuck
his hand up. Okay, so people know what they are.
I just want to just take a second, though, because
what I love about what we do in closed end
(03:45):
funds is that it does not require us to think
we know the future, the direction of markets. But as
you all probably know, there's about five hundred of them,
about half are in the UK, half are in the US,
small number in Australia and Canada. And often they own
public securities, maybe entirely public. Sometimes they own illiquid private securities, reads,
(04:10):
private equity, music, royalties, all sorts of exotic things. But
I've been focused on the public security side. So funds
we see actually the sponsors of them right here front
and center. We have Blackrock, we have Devine has dozens
of UNI funds. Blackrock has about eighty of these closed
end funds. And you can check every day on Bloomberg
or elsewhere what the NAV is, and there is no
(04:32):
disputing what the NAV is. The NAV is calculated off
of the closing price, so all of us would agree
with the NAV is. So you have the NAV, you
have the price, and those two things are often not
the same. And when the NAV is at a big discount,
it isn't necessarily an opportunity Barry, because it can stay
at that discount for a decade. Why should it not
become a bigger discount. Who's to say that that's money
(04:54):
well spent. Maybe the discount reflects the manager's fees and
the investors' inability to change. So what we've done is
we've come in with an institutional great offering, be it
our private funds or our publicly listed funds, and we
bought seven billion of closed end funds. So we're the
world's largest owner of closed end funds, And we didn't
(05:15):
just buy seven billion willy nilly. We pick the ones
with the biggest discounts, with the best language, with the
managers that are going to be most in our view
likely to do a deal. Because here's the where the
rubber meets the road. If you buy a dollar of
nav for eighty six cents, and even if it takes
you two years to turn eighty six back into one hundred,
(05:35):
you have added equity like returns on top of whatever
the underlying return is. And sometimes underlying return is it's
Muni's you know, it's things we want. And so what
I found over time is that the bigger we got,
the more votes we got, and the more we got
management to take steps. And I'll pause in a second,
give you the microphone back to press a button and
(05:57):
immediately give everyone eighty six back into a hundred. What
are those steps? Open end a closed end fund, make
it into like an ETF or a mutual fund. The
discount disappears overnight.
Speaker 2 (06:08):
And that's because of the arbitrage opportunity.
Speaker 3 (06:11):
That's because yeah, ETFs are redeemable. There, you can create them,
you can redeem them. Mutual funds have the manager has
to sell and give you navback, and so open ending
a closed end fund, no one disputes, will give the
entire discount back to the investor who has suffered in it,
if they bought it at IPO or otherwise. And so
if you think about it, we're not talking about small potatoes.
(06:32):
Eighty six to one hundred, by the way, is more
than fourteen percent, and I think you all know why
one hundred to eighty six is fourteen percent. So you
know we have been successful in getting it done faster
and faster because as we went from a billion to
three to five to seven, our ability to vote the
bums out as they say if they don't do what's
right for shareholders and put in a board that will
(06:54):
is now causing managers to increasingly take practice steps to
narrow the discounts before we ever get to their their
board meeting.
Speaker 2 (07:00):
So let's talk a little bit about that move from
two billion to seven billion. When I had you on
Master's in business, you had a chunk of money in spacks,
and we could talk about spacks a little later, and
you had a chunk of money in closed end funds,
and part of the conversation was the difficulty in getting
(07:22):
entrench management's attention to say, hey, why are you selling
dollar bills for seventy five cents? Why aren't you unlocking
this value? Tell us the process that led you to
go from two billion in closed end funds to seven billion.
Speaker 3 (07:37):
Right so, and unfortunately they're not the ones selling a
dollar for eighty five cents. It's the frustrated shareholder that
has seen it sit there and they have no way
to get back to a dollar without without us because
they're small investors. And so over time we started to
get more successful at it. Thanks for mentioning, you know,
we got these kind of institutional awards and all of
(07:58):
a sudden, institution US state pensions looked at this as an.
Speaker 1 (08:03):
Alpha that they don't have in their portfolio.
Speaker 3 (08:06):
So, you know, if they give us an often institutional
ticket is over one hundred million dollars if we from
a state pension we got four of them in the
last two years. It allows us to get bigger, faster, stronger,
so that we don't have to have a fifteen percent
position in the fund. If we have a twenty nine
percent position in the fund. Management is very worried that
(08:26):
we'll be able to cause the fund to liquidate and
they would lose one hundred percent. And so basically they
know that something screwed up that they could have given
up a little bit of fees to shrink the fund
buy back stock, buying back a dollar for eighty eight
cents is a creative to make their investors' money. But
it's always really a question of you know, greed, where
(08:47):
the manager says, I.
Speaker 1 (08:49):
Don't want to do that.
Speaker 3 (08:50):
People should be patient, whether it's been a year or
five years, and they don't want to shrink their fund.
And if they wait too long, I'm going to shrink
their fund for them in a much more severe way.
And in two kse is, actually we replaced the manager
and we were nominated awarded with the mandate. So we
now run two of these funds. We have two closed
end funds of closed end funds, and so you know,
(09:13):
it's really just like a fight between two asset managers
that have a vested interest in themselves. But also I'm
invested alongside the shareholders. I want what they want. I
want a chance to exit at an ev if the
investor doesn't want to, if you open end the fund
and they stay, great if they if the manager tenders
for shares at NAV and you don't want a tender
for some reason, your loss great. But my view is
(09:37):
that just because this thing iPod in nineteen forty nine,
by the way, there's one in the UK iPod eighteen
fifty five. Just because at iPod in eighteen fifty five
doesn't mean until three thousand and fifty five the shareholder
has to suffer under the discount because they signed up
to have to elect a board, and the board is
supposed to be working for shareholders. And what I find
(09:59):
as a patriotic American capitalist is that over in the
UK the boards have not forgotten that they're working for shareholders,
much more than in the US, where often we have
to face entrenchment. One of the things we have to
do that our shareholders don't is pay legal bills and
go to court as we as we have successfully suing
for our right, for example, to vote all of our shares.
(10:21):
So it is a scrappy fight. But in about eighty
instances now we have gotten management to give investors a
chance to exit at any v or close, which they
never ever would have done without us.
Speaker 2 (10:35):
And the returns of a closed end fund that looks
like a sixty forty portfolio, you've been generating returns of
about twelve percent, and a lot of these products, your competitors,
the other activists in the space, have been underperforming that.
They've been doing about four percent, which doesn't seem especially exciting.
(10:57):
What are you guys doing so differently with closed end
fund challenges that has led to this the track record
and the success sabas put together.
Speaker 3 (11:07):
Yeah, so I think you're referring to our ETF. The
ticker is CEFS like closed in funds pleteral. And actually
those other competitor products are not activists. They're in fact
not you know, it's not that they're sometimes they're just
trying to find closed in funds they like, or maybe
it's more like an index approach to closed in funds.
(11:28):
And if you buy a closed in fund at minus
fourteen and a year later it's still a minus fourteen,
or you've paid the manager of their fee, You've also
charged your investor of the fee, so you have kind
of two layers of fees. So you better be narrowing
that discount or you're you're not delivering alpha, and so
not some of them are here, by the way, Invesco
has a product called PCEF. And what I also find
interesting in this space is that it's so retail centric.
(11:52):
And you know, if Morgan Stanley Wealth Management has recommended PCEF,
it will grow more even at making four percent a
year than then the same underlying clothed in funds making
twelve percent a year. So I think PIECEF probably has
grown more than us in the last five We're actually
celebrating our eighth anniversary of this ETF. And so yeah,
so if you're not. If you own one hundred clothes
(12:14):
in funds and the only ones that are narrowing are
the ones sabas in, you're gonna have a pretty mediocre
return after fees or all of ours. I do not
buy a closed in fund where I feel like, if
it doesn't narrow, I'm not going to go to management
and say, please, you have easy steps to make it narrow.
Do not put your own greed in front of your shareholders.
Speaker 2 (12:34):
You just had an interview in the Financial Times last month,
and I love the quote, I love punching a bully
in the nose. Tell us what you were doing in
the UK and why the Financial Times decided to have
a sit down.
Speaker 1 (12:48):
With you so.
Speaker 3 (12:52):
In the UK the market is even older than it
is here, and it's actually like there's a lot of
pride about They're called investment try there it's I think
forty percent of the foot seed two fifty or these
investment trusts. People seem to like them. They get to
go every year and sit in a meeting and hear
about the economy and have a have a ribbi and
you know, even if the manager has underperformed or outperformed,
(13:15):
there is a lot of love for the product. But
what happened was in twenty twenty one when we had
inflation and we had a crisis in the UK, the
LDI crisis, and people were selling things. And then later
even in twenty twenty four, they increased capital gains taxes
and it caused people to want to sell in front
of that before the new tax code. And the problem
(13:37):
with these products is they don't have natural buyers at
low discounts. Only really savvy investors that look for a
double digit discount are there to buy them. So they
can fall like a knife from minus one to minus
thirteen and with enough selling, no matter how big we are,
even at seven billion in a five hundred billion space,
you know that that discount can grow. So in the
(13:58):
UK there was a lot of sell thanks to these
two problems, and we ramped up and we bought twenty
nine percent positions and some of these funds, and only
then were they willing to do things that.
Speaker 1 (14:12):
They are now. We're now currently engaged.
Speaker 3 (14:14):
It's in the press with four of the boards and
two of the other boards have already agreed. We're going
to give investors a cash option to exit an NAV
open end or tender, and that's what we wanted. If
you want to keep your if you want to keep
getting your your steak dinner every year, and you want
to stay in your closed in fund, whether it's underperformed
by forty or outperformed by eight, which were two actual
funds in question. Fine, but there is a set of shareholders,
(14:38):
not just us, that if you offer them a chance
to get out at an av they will take it
because they're not foolish. They'll make a twelve percent gain.
Your portfolio literally goes up by twelve thirteen percent in
a day if it wasn't if it was instantaneous. And
then you take that money and you do something else
savvy with it. You buy another closed in fund at
a discount, or you buy an open ended fun So
(14:58):
you know, to no one in this audience, will it
be a surprise that if you offer someone a free
thirteen percent with no consequences, they're going to want to
take it. But it took me getting to twenty nine
percent for the managers to want to do something about it.
And so I sent a letter on December eighteenth to
seven of them at the same time, saying, and you
have the right in the UK with a position size
(15:19):
above five percent to call an annual board meeting and
they have to hear they have to vote on any proposal.
And I sent a letter to seven funds and my
proposal was replace all of you and replace them with us.
So it was very aggressive, and they closed ranks. They
did all sorts of things to get the vote out.
They did phone voting. Can you imagine an election where
(15:40):
you call on the phone and you say, I don't
even know what they said. They said, we think it's
better if you vote against SABA and vote with your manager.
Do you want to do that? I don't know if
they got the right person on the phone. I don't
know if they gave me a fair hearing, but they
actually took phone votes as the main way to reach
their holders, and they defeated us on that proposal. And
then the telegraph said we need to send that American
(16:01):
home with his tail between his legs. And then somebody wrote, Okay,
he stuck. What's he going to do?
Speaker 1 (16:05):
He lost?
Speaker 3 (16:06):
What's he going to do? And I'm like, I'm not stuck.
You're stuck because now everyone knows the score is, let's
say forty two to thirty. You got forty two percent
of the vote, We got thirty. If some of you
in the audience buy this fund at minus ten, I'm
not a group with you. You go and buy it
at minus ten because you want the discount to close.
If collectively the arbitragures of the world buy ten percent
(16:27):
of it, my thirty is forty there, forty two is
thirty two or thirty three if they buy some unvoted chairs.
So we're in this kind of very uncomfortable spot right now.
This is very recent where there's these funds sitting out
there and everyone knows the distance between us losing in
us winning, and so I'm in negotiations with them, but
(16:47):
just to say, because what are we talking about is
it small potatoes? There is thirteen billion pounds on in
the UK market of just publicly traded underlyings, no ill
liquids where you worry about the NAV one hundred percent public,
ninety nine percent public. Is thirteen billion pounds of trapped discount.
So if somebody snapped their fingers, Charlie Munger rest in peace, Emperor.
(17:07):
The world's kind of conversation. If you opened all closed
end funds that are just public, the British pensioner and
some institutions would be up thirteen billion pounds, the same
kind of number in the US. So we're talking about real,
real money.
Speaker 2 (17:20):
So it's thirteen billion there, about thirteen billion here. It's
kind of unfathomable that the efficient market has not found
a way to close that gap, unless you're the actor
that is on behalf of the efficient market arbitraging the gap.
Tell us a little bit, why all this money's lying
(17:44):
around and nobody else has come up and closed this
discount yet.
Speaker 3 (17:49):
Well, so activism is hard. You make enemies. I don't
need to be Nuvine's friend. They're down, they're down the way.
Speaker 1 (17:55):
When when we had maybe there's someone here from Newvine
so I can someone's okay.
Speaker 3 (18:02):
Fine, So here's what Nuvine did. Federal law in the
Investment Company Act passing Congress in nineteen forty says, every
share gets to vote. Every share gets to vote. Sound good,
Every share gets to vote. The lobbying industry for the industry,
got in state law something that says, well, they can
(18:22):
limit your vote because no one investors should have an
undue influence. You know, like we had federal lobbying different
than state law for whatever, for marijuana, for whatever it is.
You can have these at odds, and they limited our vote.
We had like twenty percent of a fund. They'll let
us vote nine point nine nine. So we went to
court and the judge did not need to hear the case.
The judge decided on summary judgment that Nouvene had broken
(18:43):
the law and that they hurt our ability to vote
all our shares. And Nuveene appealed and the appellate court
rejected unanimously Nuvine's appeal. And then a different manager did
the same thing and we had to take that manager
to court. So you know, it's to answer your question,
it's not easy. You have to be willing to roll
up your sleeves and pay legal bills and fight, you
(19:05):
know those kinds of battles. You're not just paying for
one fight. It could affect the next fifty, right if
you can get the law to change, you know, to
be clear. So not everyone's willing to be activists, and
the activists are not so happy to run a foul
of the managers who they need. If you think about
an amazing manager like Blackrock, the Biggest right, why would
it make sense for an activist to fight with Blackrock
(19:28):
about their own closed end funds if they need to
go and lobby them on Disney or you know whatever, Nestley,
whatever it may be. So I'm in this weird place
where I'm willing to just be an activist in my
own space and asset management. And then it's not really
an arbitrage barry because these funds can stay it discounts
for decades unless someone is going to go, you know,
(19:49):
go to the mat and have the buying power to
get there. They are not arbitrage is they're actually and
you're you're right, I mean a lot of there's been
papers by Nobel Laureate economics professors in Chicago about the
puzzle of the closed in fund discount. But it's not
really a puzzle if you don't have a mechanism to
(20:10):
narrow it, and you do the mechanism to elect a
board and right now, the industry went to the New
York Stock Exchange right now meeting the last year, and said, oh,
we don't need those board meetings anymore. And they convinced
the New York Stock Exchange to put forward a proposal
to say the board meeting is not mandatory, even though
it'd been like around for ninety years. And they kind
(20:33):
of trick them by saying, well, we did this for ETFs,
but ETFs, you don't need an annual board meeting because
you can always vote with your feet and exit at
NAV and closed in funds are very different. You need
your voice, you need the ability to elect a board.
So the SEC put out a twelve page paper saying
this is not going to fly, and now they're coming
back with Trinevan, a new proposal. The NYC hasn't decided
(20:55):
yet on it, but basically it's a very tough fight.
But it's a big fight because we're talking billions and
billions of dollars even and just recently we made a
very nice deal, mutually beneficial deal with Blackrock. We love
Blackrock now they love us, and and and So the
next day two tickers Bim Easy and Big Z, two tickers.
(21:17):
The very next day, someone's giving me a fist pump.
Do you own those tickers? Okay? Well morphas Oh I
got okay. So the very next day, those two tickers
combined market value was up two hundred million dollars. So
if you think about like somebody goes to McKinsey and
they're going to try to tweak, you know, please help
our company do like you made two hundred million dollars
(21:38):
because they announced a buy back tender. So there is
enormous sums of money that that gentleman and that gentleman
and this semi gentleman can can can achieve by buying discounts.
It's not that complicated. It's so much easier than what
you know, Stan Druckemeler, you know, does you buy discounts
and you buy them over and over and over again,
(21:58):
and then you have shares and then you vote them
if they don't do something about it. And more and
more the managers are doing something about it. So I
wanted to say to all of you, for those of
you who are not invested in this space, that it is
I think an enormous opportunity, especially when markets are a
little bit expensive to a lot expensive, to try to
earn a a very nice return from something that doesn't
(22:19):
require the market to go up.
Speaker 2 (22:21):
So I want to talk a couple of things about that.
I want to talk about what you're buying, but I
also want to talk about the difference from when you're
a two billion dollar NAT annoying the big closed end
funds to a seven billion dollar Hey, we could take
a substantial position in this fund. We could take fifty
one percent.
Speaker 1 (22:40):
And vote you out.
Speaker 2 (22:42):
Tell us how the process has changed as you've accumulated
more assets under management. Are they taking you more seriously?
The fact that Blackrock cut a mutually beneficial deal with
you sounds like, oh, boaz is kind of a pain.
Let's just let's just hear them out. Has it changed
(23:03):
over the past decade?
Speaker 3 (23:05):
Well, look, they know that they their shareolders made two
hundred million dollars the next day. And actually that's not
even all of it, because the act of tendering is
not even hasn't even occurred. So it was like an
initial gain and then there's some more gain to come
between the end of this month and I think May
or June for the second fund, so it's real sums
of money.
Speaker 1 (23:23):
They can look good. We had a very.
Speaker 3 (23:26):
Actually very professional negotiation with them, and we're very happy
with the tone in both directions. So what they are
doing separate from us is I think they've decided that
these discounts are not worth the damage to the brand.
I'm not talking about that manager particularly, there are a
couple of managers who are now doing things like if
(23:47):
you look at the yield on closed in funds one
year ago or a year and a half ago versus now,
it actually went up three hundred basis points even though
rates didn't go up. The reason they went up three
hundred basis points is the manager decided to bump up
the distribution. And I'm of two minds about it, because
there are some funds that used to have a six
percent distribution and went all the way to twenty or fourteen.
Speaker 1 (24:10):
So it seems a little bit like.
Speaker 3 (24:13):
A little bit I don't know what the word is,
but like if one day you're able to pay six
then all of a sudden you're able to pay twenty.
Do you think that the dentist, the really nice dentist
who you know, has a chain of dental establishments, understands
that that fourteen is a return of your own money.
Could you put a dollar in the assets are only
earning six, they're giving you six, but then the next
(24:34):
day they're starting to give you twenty. What's that fourteen?
That fourteen is your own dollar coming back to you.
And what happens is and you guys will know this.
People will go in morning Star and they'll sort by
yields and we'll say, amazing, look at this manager, and
I get to have twenty percent, and I get to
have growth equities. Sounds like the greatest thing ever. And
they will bid up those closed in funds and the
discount starts to go away. And there's some of them
(24:55):
that even traded a premium, and so that's all fine,
but they're there's no alchemy in finance. And at some point,
if they cut that dividend again, you can have a
fifteen percent loss, twenty percent loss in a single day.
Otherwise that fund is just going to shrink and shrink
and shrink, because it's shrinking by that fourteen every year.
So so, but just to say, managers now are taking
steps without us to return capital to investors at an
(25:17):
ev through over dividending, through tendering, through other discount management plans,
and in the UK, to their credit, they actually are
replacing managers that have underperformed with better managers and that
can cause the funds to trade better. So so I
like it because it helps my existing portfolio. You know,
I do wonder, well, what if this whole thing goes away?
(25:38):
You know, that's kind of an interesting topic, but it's
been around for this discount for a century. I don't
think even with these steps, I don't think it's going away.
Speaker 2 (25:46):
And what are in these closed end funds?
Speaker 1 (25:48):
Is it bonds?
Speaker 2 (25:49):
Is it equities? Is it convertibles? What are the publicly
traded and traded holdings that these closed end funds tend
to hold?
Speaker 3 (25:58):
Right, So I'm not going to recommend my own fund overtly.
I'm gonna do it telepathically to all of you, okay,
because I can't overtly tell you to go invest, you know,
just let me do it and you relax at the beach.
But I'm going to recommend another fund because I do
want to give a ticker. You know, it's kind of
the right, you know, nice thing to do, and it's
actually a fun I recommended some months ago at Grants.
(26:20):
I spoke at Jim Grant's like conference, and at the
time we had a two percent position, so we were
really quite small, but I didn't mind recommending it, even
though we're buying it. We now have a seven percent position,
and the ticker is g DV like gold does vary.
I don't know someone have a better one from that.
And it's a Gabelly fund. And Gabelly has a number
(26:42):
of funds that traded premiums to NAV. What premiums TENAV like,
you know, even one of them has a sixty percent premium,
so you can have funds at premiums also, which is
another story. But this fund's at a double digit discount.
It's at a thirteen discount. So you have a fund
whose biggest holding is American Express, it's got JP Morgan,
it's got Google. I believe, it's got those kinds of stocks.
(27:04):
And it's three billion. But if it was at NAV,
it would be thirty it would be fourteen percent more
than three billion, So you were talking literally about four
hundred million dollars to shareholders if it was open ended
or if they somehow found a way to erase the discounts.
So I like it because it's nice to be able
to take a two hundred million dollar position in something,
(27:24):
and we have positions as big as four hundred and
fifty million single funds. But so that's one that you
know a lot of people here could buy at minus thirteen.
You like the portfolio. The fees are high because these
fees were set long ago. There are about one hundred
and twenty BIPs, so I have to think about that.
But there is a lot to do in the US
and the UK right now, especially because the speed at
which we're narrowing discounts has gone faster.
Speaker 2 (27:48):
So you mentioned you just alluded to something I want
to follow up on. There are five hundred or so
closed end funds between the US and the UK. About
if I recall you saying this correctly, about one hundred
of them trade at a double digit discount to NAV
How long can this go on for? Are you gonna
(28:10):
put yourself out of business by creating all this value
or is this something that is going to persist forever?
Speaker 3 (28:17):
So when these funds are not trading in discounts. The
market can grow. They do secondary offerings, they bring new
IPOs for that new hottest esg. You know, tech, whatever
it may be, whatever the the thing that is sellable,
and and so there there have been a shrinkage in
the number of funds, but that's generally because of merger.
(28:40):
I don't believe I'm gonna put myself out of business
because because as much as big as we are at
seven billion, again it's five hundred, so we're now we
are seven out of a much smaller set of interesting funds.
But lo and behold, if the market sells off, you know,
I'm not gonna be able to keep to keep it
from from selling off in my names either. And like
(29:01):
when twenty twenty happened, all of a sudden, almost every
fund was interesting. And that's the thing is if a
funds at minus fourteen and you have a big sell off, yeah,
I can go to minus twenty usually comes back pretty quickly.
If it's at minus one and you have a big
sell off, it can go to minus twenty just as quickly.
And so there isn't a safety net where you would
(29:22):
have people to catch it, you know, people say, wow,
at minus six sixteen seventeen, I like it even more so.
I do think all sorts of funds that we were
historically activist in or not one of them. By the way,
it's a fun we were activist in that we shrunk
it shrunk. It's trading now at plus one, and they've
done two rights offerings. They've grown that fund. So I
(29:42):
think the industry when it's not at a discount, can issue.
When it is at a discount, it needs us even more.
And we also, even when it's in the normal state,
are cleaning up the weakest, biggest discounts. And I think,
you know, ironically, we're in some ways an ally of
the industry, even as an activist, because we're making it
possible for them to bring new funds. You all obviously
(30:03):
followed the saga of Bill Ackman trying to bring a
twenty five billion dollar closed INN fund. If you, you know,
think about location, location, location for real estate, what is
the reason why he couldn't bring a twenty five billion
or even a much smaller closed n fund discount discount discount.
People were worried, if I buy it at IPO, what
if it goes to a discount, I'll look silly. What's
the mechanism to stop it from going to one hundred
(30:25):
to ninety? And maybe that's even not an unlikely case.
And so the protecting against the discount having a having
a discount management policy. If it ever gets to X,
I'll buy it back, that kind of thing. I think
that's the way forward for the industry to be able
to issue more of these things. But it is challenged
because you all know as well as I do about
(30:46):
actively managed mutual funds, low cost ttfs, and so you know,
there is some theory, Like when Heard on the Street
wrote about my case in London, the journalist is basically like,
what do we need these things for now? That offended
a lot out of the UK market. Some of them
are not needed, Some of them that have truly liquid
assets are needed because an ETF would be the wrong
rapper for it. So I do think there is a
(31:08):
home for closed end funds, and I can't get enough
of them. I like, really, for twelve years, have just
been interested in the house and wise it changes what regions,
what product types. Right now, the most interesting are equities
you're asking, you know, just run of the mill public equities,
and the UK is more interesting on average because the
(31:31):
governance is better.
Speaker 2 (31:33):
So look the name of your ETF. The symbol is
CEFS closed end funds. But you ended up taking over
to closed end funds yourself as managers. Tell us about those?
How did you end up running these? And what's the
performance been?
Speaker 1 (31:52):
Like?
Speaker 2 (31:52):
What's the discount look like today?
Speaker 3 (31:55):
So there is a manager Voya that had a fund.
Seeing some heads nod, and we bought twenty four percent
of the fund. There was an election coming up, and
some days before the election, they announced that for the
better of shareholders, they thought the board thought that instead
of us just needing the majority of the votes, which
(32:18):
is usually I think about elections, you know, we would
need sixty percent. But it wasn't even only that. We
wouldn't need sixty percent of the votes. We would need
sixty percent of all shares voted or unvoted. And I
think they got something like fifty six percent to vote,
so we would needed like sixty We needed more than
every vote. Okay, So we took them to court. It
(32:38):
was in Arizona. And you know it's always funny, like
if you've been in legal disputes and discovery, you're like,
wait a second, how would you do that? Knowing that
we would get to see the source documents, and there
was some documentation that they were worried about losing the
AUM to our action, and it was really too entrench
(33:00):
which the board is supposed to be working for shareholders.
It seems like they're working for Voya. So we took
them to court and we won, and Voya resigned as
manager and they said they'll stay as manager until we
can find a new one, and we changed the mandate Barry.
It was all hygold loans, and in a very opportune time,
we sold all high old loans between June of twenty
one when we took it over and the start of
(33:21):
the twenty twenty two bear market, and we replaced it
even yield. So sell a single B loan or a
double B loan at three fifty over library it was
called at the time, and sell it at three fifty over,
and then buy a spack at three fifty over because
they were trading at a three and a half point
discount to their one year maturity date, and you would
(33:44):
basically still earn your three fifty but you would have
gone from single double B loans to triple at bills
in a box at you know, JP Morgan or Bank America.
And then twenty twenty two appened and we were out
of two hundred and fifty seven closed in funds, we
were the number one performer. So we got very lucky.
I'm not going to be able to do that magic
trick again. And you know, I would have been very
happy to be twenty fifth out of two fifty, but
(34:04):
instead we were first. So you know, it did not change.
Our fund is still trading at a discount, trading at
like a one of them's at a seven, one of
them is at a nine, but single digit discounts. But
but I want to tell you is that my general
counsel said, I'm going to spare you the second story.
Do we really want to run one of these? Because
what if we do badly and what if they say,
you see, it's not so easy? And I said, I
(34:25):
really want to run it to show that there is
a better way. I'm going to change the governance how
votes are cast to be friendly to the shareholder. So
it used to be that let's say the election was staggered,
We're going to do it all in one year, so
you can you can get us all out in one period,
change change it in other ways, and we're going to
offer shareholders and exit near nav and we did that
(34:47):
in both funds, so something that you know, we're often
not able to get the managers to do with that coercion.
So so I run two funds. The tickers are SABA
and BRW and but you know, sometimes people look at
the tracker and they don't realize we only took one
of them over a year ago, fourteen months ago, and
one of them about three and three quarter years ago,
(35:07):
So that's been great. We changed the investment type to
include SPACs, but right now they mainly own closed in funds,
So I have a product which is closed in funds
mainly of closed end funds. And what's kind of fun
about that is I took their capital and now I
have their capital working against them because I'm buying their
own funds with that capital to then vote against management
(35:30):
and hopefully get all of you and me anyvy. And
that's been really fun again because I don't have to
read the Wall Street Journal. I mean, I have other
reasons to read it, but this is a space where like,
can you turn eighty five cents back? Into a dollar
or not. And it's it's just a it's it's it's
not easy, but it's it's totally different than regular investing.
Speaker 2 (35:49):
So I want to sum up your part of your
investing philosophy as a statement you once made, I don't
make directional bets. I make miss price bets. And that's
a huge change of perspective. How a lot of people
in finance bet deep down inside? Doesn't that mean that
(36:11):
you're just a value investors? Is that the space is?
Are those the waters you swim in?
Speaker 1 (36:18):
Yeah? But I'm never well by the way.
Speaker 3 (36:21):
Those three funds you know, have beta to them, but
most of my assets are are hedged, and I even
managed tail protection money for different pension funds. I think
people are a product of their vintage, you know, like
when you hear about your grandfather grew up in the
war and whatever and that's why he's all cranky or whatever.
But you know, I grew up in a period of war.
For the markets, I had a trading book in nineteen
(36:41):
ninety eight, right when Russia was defaulting, and then like
three years later was you know, Enron, and then was
nine to eleven like two months after that, and six
months after that was WORLDCLM. So, so my vintage was
not to be directionally long, and it was not even
in my makeup. It was more to be an arbit treasurer.
Isn't that value?
Speaker 1 (36:59):
Yeah?
Speaker 3 (36:59):
Arbitray is value. But I also think you have to
find like your niche and where you're comfortable, and I'm
most comfortable where a is mispriced to be and and
I can actually put both legs of the trade on.
Speaker 2 (37:15):
So in the last two minutes or so we have
I want to talk about your ETF because it's relatively
new to see somebody with your background in that space
ce f s. Who are the buyers of closed end
funds ETF and what's what's the investment target? What are
(37:35):
you looking to generate in a fund like that? And
then what are the holdings?
Speaker 3 (37:40):
Yeah, so I'll be a little careful because I don't
know exactly.
Speaker 1 (37:43):
I don't I don't want to market. Okay, you're you're
You're I'm asking question.
Speaker 2 (37:48):
I'm asking because I'm fascinated by this product. And anytime
there's an opportunity to say to clients, hey, we're going
to try and get you equity like returns with bond
like risks, people sit up and pay attention. There aren't
a lot of credible products from managers I could market
for you. There aren't a lot of credible products from
(38:09):
managers with as long a track record as you've amassed
that people don't really know about. This is a relatively
unknown product that really checks.
Speaker 1 (38:19):
The bout all right.
Speaker 3 (38:20):
And to just to as a disclaimer, we've owned it
in some periods almost all fixed income, and now we
happen to own mostly equities, so it's not bond like risk,
it's bond and equity like risk. Let's say, so, we've
seen it grow every year. We had no distribution plan,
we had no distribution.
Speaker 1 (38:37):
It started with like a.
Speaker 3 (38:38):
Couple of million dollars and maybe it's now two hundred
and fifty five or so. It gets creations every few days.
So I think some value investors have thought to say, Okay,
I know this is a space that's interesting, and I
have the state your track record, and instead of buying
it after I read that SABA about it, why don't
I just give it to SABA and let them do
their thing.
Speaker 1 (38:57):
That's the name of my firm.
Speaker 3 (38:59):
So so I think it's got a pretty dispersed shareholder base.
These products have grown. There's one I think that Amplify has.
I think to take her for that's wyy why And
I think it grew over the same period more than
we grew, and it again had you know, less than
one third of the return that we had. So I
do look at the market as highly inefficient. That you know,
(39:21):
if you have somebody doing something for eight years and
is very similar to someone else and one made twelve,
one made four, it doesn't you would think by year
seven or something, you know, you would start to out
raise them. I'm not very focused on how big it
gets because almost all of our AUM is in our
hedge funds. I just think it's really neat to have
a product that mom and pop can invest in that
is no incentive fees. It has one hundred and ten
(39:42):
bit management fee, just to say, because sometimes people get
confused and the fact that the funds themselves borrow money
at SOFUR and have their own fees that get impeded
into our expense ratio. People get confused and think I've
read it on Seeking Alpha that we charge five percent
or something, but no, our fee is one hundred and
ten BIPs. You don't even keep all of it because
we are are if a firm that's helped us structure it.
(40:04):
So I just think it's nice to have an ETF
out there where people can get kind of sabalite if
they want a lonely product. And so it holds mostly
US equities through closed end funds of venerable managers like
Blackrock and you know PIMCO.
Speaker 2 (40:21):
So, as Boaz discussed, he runs a hedge fund SABA Capital.
It's about seven billion dollars, but he also runs an
ETF of closed end funds. The stock symbol is cef S.
It's a little over two hundred million dollars in assets.
You get to participate in the same strategy, only in
(40:42):
an ETF, not a hedge fund. Investors who are looking
for relatively steady gains with modest volatility. The activist approach
has proven successful in identifying closed end funds that are
trading at a discount. This is one way you could
(41:02):
get that exposure. I'm Barry red Halts. You've been listening
to Bloomberg's at the month
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