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Investec goes for Gabelli Value’s throat with discontinuation vote

11 September 2019

Gabelli Value Plus, a poorly performing US investment trust, is locked in a battle with wealth manager Investec, its largest independent shareholder.

Gabelli Value Plus (GVP), a poorly performing US investment trust, is locked in a battle with wealth manager Investec, its largest independent shareholder, which is demanding the company hold a continuation vote to enable investors to close the fund and withdraw their money.

Investec Wealth & Investment owns 22% of the £127 million trust putting it second to a 27% stake held by Associated Capital Group, an affiliate of Gamco, the New York-based activist fund manager that launched the trust over four years ago.

In an open letter to Gabelli’s chairman Jonathan Davie, Chris Hills, Investec’s chief investment officer, attacked the board for its inaction over the trust’s ‘material underperformance’ that has seen its net asset value (NAV) grow by 43% since launch in March 2015, well below the 67% from the Russell 3000 Value index.

In the letter, sent to all of the trust’s shareholders, including rival wealth managers Smith & Williamson, Rathbones, Brooks Macdonald and Brewin Dolphin, Hills criticised what he called the company’s poor reporting, high management fees and the lack of a catalyst to address the double-digit discount on its shares.

He reserved his most scathing comments for the board, which he said had consistently failed to provide the performance analysis Investec sought and appeared happy with the status quo.

Hills originally contacted Andrew Bell, the Witan (WTAN) investment trust chief executive who was then Gabelli’s chairman, early last year, before expressing his concerns again to Davie who took the helm in July 2018.

Hills said it was ‘wholly unacceptable’ that the board had failed to respond to Investec’s concerns before this summer’s annual general meeting, which is why the firm had voted against the re-election of the trust’s directors, who since last year have included Chris Mills, the smaller companies fund manager and founder of Harwood Capital.

Following the AGM Davie told the board he wanted to step down.

Publishing the letter today, Gabelli Value Plus said it disagreed with a number of Investec’s points and would respond in due course.

In a letter sent to shareholders a day before the 31 July AGM Gabelli Value provided more analysis of its performance, which Hills said had validated some of his concerns.

At the meeting the trust proposed a tender offer to buy back up to 15% of its shares to narrow their 11% discount to NAV and to also hold a continuation vote every two years starting next year. The tender offer was withdrawn, however, after Investec said it would push for a continuation vote.

Hills commented that in the absence of a ‘robust defence of the fund’s poor performance’ there was no good reason for shareholders to wait a year to decide the trust’s future.

Gabelli Value Plus was the first of two investment trusts launched by Gamco. It drew £100 million from investors on its plan to target undervalued US companies that could become bid targets or be restructured to release shareholder value.

Its annual ongoing charges of 1.37% are higher than the four other North America trusts listed on the London Stock Exchange, which levy between 0.38% and 0.95%

Gamco’s other trust in London is Gabelli Merger Plus (GMP), a £74 million merger arbitrage fund launched two years ago whose shares trade 10% below NAV.

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