Episode summary
Unlocking Huge Gains in Closed-End Funds & Activist Investing
The Acquirers Podcast
· · 6 min · Hosts: Tobias Carlisle, Jake Taylor
Summary
Closed-end funds are presented as a classic value investor’s hunting ground because their exchange-traded structure can create persistent discounts to net asset value. The host explains that after the Drexel Burnham collapse, he and others bought junk-bond closed-end funds at deep discounts while still collecting high yields, and that dislocations like that continue to create opportunity when sentiment sours. He argues that unlike mutual funds, closed-end funds have no natural aftermarket buyer and are driven by market psychology, so they can swing from premiums to discounts in ways that patient buyers can exploit.
The discussion frames activism as the main catalyst for closing that gap. The host says managers dislike liquidating because closed-end funds are “permanent capital,” so activists push for buybacks, tender offers, or liquidation to unlock value. He describes the strategy as a three-part return stream: recovery in the underlying asset class, narrowing of the discount, and the dividend yield.
Boaz Weinstein and Saba Partners are highlighted as the biggest current force in the space. The host says Weinstein has lost some court cases but remains persistent, and that the UK is especially interesting because discounts there are often very large. The broader point is that activists can become successful more often over time as they gain institutional support and, eventually, enough votes to replace management.
Key takeaways
- The host sees closed-end funds as attractive when they trade at wide discounts to NAV, especially after market dislocations.
- He argues the return profile comes from three drivers: underlying asset recovery, discount narrowing, and dividend yield.
- Activists such as Boaz Weinstein can pressure closed-end fund boards into buybacks, tender offers, or liquidation.
- The host says the UK market is worth watching because closed-end fund discounts there are often especially large.
Notable quotes
“We started buying closed-end funds in the '90s in the aftermath of Drexel Burnham”
“we're getting 15% yields and paying a 20% discount on these closed-end funds”
“I want the discount. I want the nice yield, and I want an activist, and there's a couple of them in the space”
“once you get over 50%, you can just replace the management of the fund”
How the episode opens
Um closed-end funds. — I love — You think of closed-end funds?
I love closed-end funds. We started buying closed-end funds in the '90s in the aftermath of Drexel Burnham. Because I worked for um Dean Witter.
And Dean Witter back then, they loved closed-end funds. Closed-end funds, you could pitch them as IPOs. Like cuz closed-end funds are not like normal mutual funds.
When you buy a fund from Fidelity, you're transacting with the fund. You buy and sell through the fund. In a closed-end fund, there's an IPO, and then it trades on the exchange, just like a regular stock or bond.
So, Dean Witter loved them cuz man, you could pitch those and there was no direct commission. 7% sales charge, mind you, built in internally, but no obvious commissions. Um and they did a lot of junk bond funds.
So, when Drexel blew up, so did the funds. So, the funds were sitting here and they had all these, you know, smoking underwritten junk bonds in them and, you know, a bunch of First Boston stuff. And but most of the loans were still performing.
A lot of them were going to go out, but, you know, probably 75% of the market never defaulted, right? So, we're getting 15% yields and paying a 20% discount on these closed-end funds. It was the no-brainer of the day.
And it worked out tremendously well. And we've seen dislocations like that that occur in markets and it creates opportunity in closed-end funds. Now, there's a natural opportunity to a closed-end fund that I've always found attractive.
Again, Fidelity, BlackRock, all of the major mutual fund companies, they advertise constantly, right? On the financial networks, online, everywhere you look, there's ads and advertising for this fund and that fund and this fund.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- closed-end funds
- activist investing
- market crash planning
- hedging strategies
- drawdown and tranche investing
Watch the episode
Watch “Unlocking Huge Gains in Closed-End Funds & Activist Investing” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Acquirers Podcast, this episode and its artwork belong to Tobias Carlisle. Octagon is not affiliated with the show; this page is an independent summary.
