Marc Gabelli, chief executive of Gabelli Securities, praised the UK for bringing together retail and institutions in the investment trust market and said London could look to widen the investor base in continental Europe.
Gabelli Funds completed the £100m offering of a closed-end fund, The Gabelli Value Plus+ Trust, on the London Stock Exchange in February. The fund was offered by New-York based Gamco Investors, founded in 1977 by famed value investor Mario Gabelli.
The Gabelli Value Plus+ Trust was the firm’s first UK listing of a closed-end fund after its history of listing funds in the US.
Marc Gabelli told Markets Media: “We have been an investor in the UK and continental Europe for over 30 years. We wanted to give UK investors access to what we do for our institutional clients.”
The other possible European venues for listing the fund were Borsa Italiana, which is owned by the London Stock Exchange Group, and Euronext, the pan-European exchange operator. “Euronext does not have the same governance structure as London or the same secondary trading environment and their audience is less sophisticated,” Gabelli added.
On July 21 Marc Gabelli delivered the opening address at the LSEG’s Listed Funds Investment Conference in New York.
US fund managers made up a fifth of the money raised on the London Stock Exchange’s specialist fund market in the first half of this year.
The London Stock Exchange Group said 14 funds listed in the first six months of this year to raise a total £2.3bn ($4bn), a 6% increase on the same period last year and the most money raised in the first half of the year for the last 10 years.
Alongside The Gabelli Value Plus+ Trus, two other US funds listed in London in the first half.
Gamco had $46.5bn in assets under management as of March 31, including $7.5bn in closed-end equity funds.
The firm's first listing of a closed-end fund, the Gabelli Equity Trust, was in New York in August 1986. Gabelli Funds now manages 11 closed-end funds in the US and is currently underwriting the “best efforts” offering of the twelfth, The Gabelli Go-Anywhere Trust.
Gabelli explained some of the differences between UK and US regulation of closed-end funds. In the US, closed-end funds are regulated by the SEC who have more restrictions - such as the type of investments that can be made and the level of gearing.
In the UK, a closed-end fund is created as a capital formation company and can accumulate gains. In contrast in the US, gains have to be distributed to shareholders. Gabelli said Gamco had paid out more than $6bn in distributions from its US-listed closed-end funds.
“In the US closed-end funds are retail investments,” he added. “I applaud London for making both institutions and retail come together in the investment trust sector.”
There are also differences in how closed-end funds are sold in the US and UK.
In the US closed-end fund listings are underwritten by a syndicate of multiple brokers, who each sell the fund to their retail clients. It is possible for a fund to raise $1bn in one week but the listing fee is 4.5%.
In the UK the listing is managed by one broker - which was Investec for the The Gabelli Value Plus+ Trust. As a result the offering takes longer, typically eight weeks, and raises less money. However the listing fee is 2%, and in this case The Gabelli Value Plus+ Trust absorbed 1% of fee.
Gabelli suggested: “UK brokers could use the London Stock Exchange as a base to develop the market for investment trusts in continental European by adopting the syndicate model with European partners.”
Marketing to European investors has become easier since the The Alternative Investment Fund Managers Directive established harmonised regulation across the European Union in order to strengthen the internal market in alternative funds.
Investors have been shifting flows into passive funds, with the assets under management in exchange-traded funds and products overtaking assets under management in hedge funds this year. Gabelli said passive investment has a role to play and assets have grown in a bull market.
“We have yet to see what happens in a market downturn,” he added. “A closed-end fund with an active manager will preserve capital more than an ETF.”
He also remains optimistic on some European companies despite the macroeconomic turmoil and the problems in Greece.
Gabelli said: “There will be hiccups but there some terrific European businesses with defendable franchises such as Rolls Royce.”
Feature image by grgroup/Dollar Photo Club