Activist Gabelli Value Plus trust raises £101m at launch


The Gabelli Value Plus Trust, run by Gamco Investors, the New York-based activist fund manager, has raised £101million at launch.

The trust, which is to be chaired by Witan chief executive Andrew Bell (pictured), is Gamco’s first foray into the investment trust market. It had been looking to raise up £250 million and put in place an experienced investment trust board to appeal to UK investors. However, despite the amount raised being well below this figure, the group still considers the launch a success, citing investor caution on US equities and the fund’s alternative strategy.

Founded in 1977 by Mario Gabelli, a former pupil of pioneering value investor Benjamin Graham, Gamco uses a proprietary method to identify undervalued companies that could either become bid targets or be restructured to release shareholder value.

It claims the technique has generated an annualised return of 15.9%, which it says is around 4% higher than either the S&P 500 or the Russell 2000 US smaller company index.

Bell, who recently stepped down as chairman of the Association of Investment Companies (AIC), will be backed by Richard Fitzalan Howard, executive chairman of Fleming Family & Partners Asset Management who also sits on the board of JP Morgan Smaller Companies investment trust.

The other directors on the board of the new trust are Charles Irby, former chairman of Aberdeen Asset Management who is also a director of Chris Mill’s North Atlantic Smaller Companies investment trust, and Rudolf Bohli, who heads up RBR Capital Advisors in Zurich.

Marc Gabelli, son of founder Mario and a senior portfolio manager at the group, said the launch would look to capture a ‘fifth wave’ of merger and acquisitions as cash-rich US companies looked to buy growth as revenue increases slowed down and profit margins peaked.

Last year M&A deals in the US soared to $3.5 trillion (£2.3 trillion) from $2.4 billion in 2013. Gabelli said previous takeover booms occurred in the 1960s – when conglomerates flourished – and in the 1980s when junk bond bidders unpicked many of the disparate groups created in the Sixties – followed by the consolidation and private equity booms of the ‘90s and pre-crisis ‘noughties’.

Gabelli said the firm’s private market value technique identified companies whose shares traded below the level a strategic buyer would pay. Not only did the discount offer a ‘margin of safety’, it also provided the opportunity to seek a catalyst that would unlock value.

Sometimes that catalyst would be investor pressure to restructure, as in the case of Fortune Brands which in 2010/11 sold its golf division and spun off its home & security and Jim Beam spirits businesses, which, following a bid for the latter last year, more than doubled shareholders’ investment.

At other times, the death of a family owner could provide an opportunity. Gabelli highlighted the recent spike in the shares of US candy maker Tootsie Roll, which the group holds, after the death of its founding chief executive revived long-standing takeover speculation.

Gabelli said Gamco was the biggest filer of 13D forms which US investors sign if they wish to register as active shareholders who can engage with company boards.

Although he said Gamco did not have dialogue with all the firms for which it had 13D registrations and preferred behind-the-scenes talks when it did engage , it was prepared to stand up and fight for shareholder rights, for example, launching legal challenges if it believed companies had accepted takeover bids below their true value. Although a new name to many investors, Gabelli has had a base in London for 15 years and has run a fund for Swiss fund manager GAM.

Gabelli said the trust would aim to invest shareholders’ money within 45 days. He envisaged the portfolio would hold around 100 stocks and have a mid cap bias with holdings having an average market value of $28 billion (£18.5 billion), compared to the S&P 500’s $132 billion (£87 billion).

Launch expenses were capped at 1% so the trust starts trading with 99p of net asset value per share. Gamco will charge an annual management fee of 1% of market value with no performance fee although it anticipates annual total expenses of 1.23%. It will pay two dividends a year and seek to prevent the shares falling to a steep discount below NAV through tender offers and buy-backs.