Associated Capital Group, the US alternative investments provider embroiled in a corporate governance row at Gabelli Value Plus (GVP), has appealed to the investment trust’s board and fellow investors to give its fund manager two more years to improve performance.
ACG, which owns over 27% of GVP, the worst-performing London-listed North American equity closed-end fund, outraged investors last month when it threatened to it use its stake to block the liquidation of the company, despite a majority of shareholders voting against its continuation at an annual general meeting in July.
It wants the fund, which has net assets of £127m, to continue with fund manager Gabelli Funds, believing its value investment approach to US small and mid-cap companies will revive given time.
This provoked accusations of a gross conflict of interest as ACG is an affiliate of Gamco, the New York-listed parent of Gabelli Funds. Gamco’s founder and executive chairman Mario Gabelli span off ACG five years ago. He chairs the company and is also one of the senior portfolio managers responsible for GVP, whose net asset value (NAV) has grown by less than a third of the US stock market in the past five years.
Including a 0.4% direct stake in GVP shares, Mario Gabelli has influence over 27.8% of the company’s shares, more than the 25% needed to vote down special resolutions put to shareholders.
This week, GVP’s chairman Peter Dicks, who had served Gabelli Funds with two years’ notice after the discontinuation vote but paused the push to liquidation after ACG’s intervention, issued an update to investors in response to the threat of legal action by ACG.
Dicks, who has received the backing of shareholder Capital Gearing’s (CGT ) Peter Spiller, re-stated the board’s intention to act in the best interests of all shareholders and that he would consult again with investors until 14 October on the following proposals to return their capital:
- Putting forward another special resolution for GVP’s voluntary liquidation;
- And if that were blocked again by ACG, putting forward a separate ordinary resolution, requiring 50% of votes cast, to return £97m of GVP’s distributable reserves by a share tender offer;
- Alternatively, changing the company’s investment objective in order to sell its portfolio and hold cash for future distribution.
Stifel investment companies analyst Iain Scouller said it was good to see options on the table that could return a ‘significant portion’ of investors’ money. ‘This whole debacle does illustrate the risks of an investment management group having a significant stake in a fund, as there will be times when their interests are not aligned with those of the rest of the shareholder base,’ he said.
‘Get a grip’
The question is how long it will take for investors to see their money?
On a webinar, hosted yesterday afternoon by ACG and Gabelli Funds, ACG director Bruce Lisman, who is heading a subcommittee to evaluate options for its stake in GVP, sought to take the heat out of the situation by telling angry UK investors to ‘get a grip’, that he was open to discussion and assuring them that ‘your opposition does not make you an enemy’.
He reiterated ACG’s view that GVP’s board had been wrong to use the Russell 3000 Value index, which he said was the ‘wrong metric’, to measure performance. Although returns had disappointed because value and smaller companies had been out of favour since GVP’s 2015 launch, Lisman said they were not out of line with other US equity value funds and that it would be wrong to ‘junk’ a portfolio at the bottom of the market.
In a slight modification to earlier proposals, he said GVP should halve the management fee it paid Gabelli, resume share buybacks of up to 10% a year and adopt a 6% dividend policy to attract income investors - measures that analysts have mostly dismissed as too little, too late.
His biggest concession at the end of the call was to say that ACG would step aside and not use its blocking vote in two years’ time if a majority of investors still wanted to liquidate GVP.
Today Numis Securities said ACG’s proposals remained at odds with the wishes of GVP’s board and other shareholders. It believed ACG was seeking to buy Gabelli time to improve performance that has seen the trust’s NAV fall nearly 7% in the past three years and grow by 38.7% over five. This compares poorly to the average returns of 25% and 97% of its peers and of 44% and 125% by the US S&P 500 index over those periods.
‘However, we believe it would be hard to turnaround sentiment towards the stock even if performance improves as the relationship with most shareholders and the managers appears to have broken down. We would expect the board to continue to seek to pursue the managed wind-down, although it is likely that the process is going to be messy and drawn out,’ Numis concluded.
GVP shares dipped 2p to close 1.7% down at 119p on a discount of 6% below net asset value, according to Morningstar. After a 41% rally in the past six months they remain 7% below their New Year starting point.
Shareholder unrest has built up over time at GVP. The discontent exploded into the open last year when Chris Hill, chief investment officer at wealth manager Investec, wrote a public letter to Dicks’ predecessor, Jonathan Davie, attacking the board for its inaction over the trust’s ‘material underperformance’.
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