Although virtually unknown in the UK, but with a record of long term outperformance in their native USA, Gabelli has succeeded in breaking through the important £100 million mark in its float on the London Stock Exchange.
With a launch party held at the opening bell (for which they’d brought their own bell) at the LSE in Central London at 8am on 19th February, the Gabelli Value Plus+ Trust Plc (LON:GVP) had much to celebrate. Against considerable odds, they had raised £101 million from UK investors for their bespoke investment style developed by founder Mario Gabelli in the late 1970’s.
Since its inception in 1977 to 31 December 2014, the Gabelli Core All Cap Value Fund, has produced a compound annual return of 15.9%, net of fees, thrashing the S&P 500’s return of 11.7% annual return over the same period.
Marc Gabelli, the founders son, and a senior portfolio manager at Gabelli, and parent company Gamco, headed up the London launch, spending several weeks visiting potential investors throughout the UK. I asked for his reaction to the successful IPO and he said: “It’s an incredible privilege to now get to work and grow wealth for the UK investor base who have entrusted us with their assets. We believe in the benefits of the closed end structure and we think it offers excellent attributes for the long term growth of wealth for the UK investor in the US market”
“We’re index agnostic, all cap, bottom up, fundamental; we roll up our sleeves and invest in businesses in the United States. The US economy is strong, it has a relatively stable political structure and corporate structure, and the US is entrepreneurial. Its cost structures are lean, we’re excited by the growth prospects in the world through globalisation, and the opportunity it creates for US products, but at the same time we’re excited about the prospect for M&A, and we think this will increase in the US at an accelerated pace”.
Gamco is well established in its home market with a brand name that is familiar to many, so I asked if he plans to expand in the UK and open up more funds here “Our only plan is to grow this trust, deliver the performance and grow the wealth of our clients. The Value Plus+ Trust is out first offering in the UK, but in the US we have $50b, we run 11 closed end funds, we have 20 open ended, we obviously have a broader business there, but we’re not trying to replicate that, we’re trying to simply come to work every day and perform”.
In-depth research and analysis
Gamco’s investment style is based upon the work of Benjamin Graham and David Dodd, the fathers of value investing. It is also practiced by Warren Buffet, who was a pupil of Graham’s. Mario Gabelli developed it further in a trademarked system he named ‘The Gabelli Private Market Value with a Catalyst Methodology’.
The system rates companies by free cash flow rather than by earnings, analysing investee companies in great detail to calculate the private-market value, that is, not the share price it’s selling at on the stock exchange, but the price that someone would be willing to pay in order to buy the whole company.
Once you divide the price someone would pay for the whole company by the number of shares in issue, you come to a price per share, if the individual shares are trading below the price someone would pay for the whole business, then the shares are cheap, with the reverse being true if it trading in excess of the price.
Gamco goes to great lengths in undertaking their analysis, with the process today requiring the firm to have a much higher headcount than competitors. In their word “We want to know everything and anything that will add to, or detract from our valuation estimates”.
It’s not enough to simply identify a business that is cheap however, because some companies and industries can remain cheap for a long time. The second part of this process is they look for a catalyst that will help provide the opportunity to realise the ‘hidden’ value. Catalysts can be varied and include things like M&A activity, technological change, the opportunity to break companies up or spin off forgotten subsidiaries, restructuring, financial engineering and so on.
There methodology was emulated in various forms by the private equity industry in the US in the 1980s in leveraged buyouts, in which a public company’s managers would buy their company, or at least a considerable part of it, and take it private. The calculations employed were often not the same as the standard valuation measures for public companies.
Skin in the game
Gamco managers are encouraged to invest alongside shareholders, with this commitment extended to the firm and its associates subscribing for 10% of the issued stock in Gabelli Value Plus+.
A tangible sign perhaps, that Gabelli really understand the investment structure and the importance of good corporate governance is the impressive line-up of individuals have sought to join the independent Board, which include Andrew Bell CEO of Witan, who is the Chairman of the trust, and most recently Chair of the AIC. Also, Richard Fitzalan Howard, the Chair of Fleming Family & partners, and Charles Irby, a former Barings banker and chair of Aberdeen asset management.