Stand up, stand upright set up.
This week an unconventional At the Money at future Proof Miami. I sat down with Boaz Weinstein. He's a previous guest on Masters in Business. He runs SABA Capital, and he's one of these people that looks at the world a little differently than everybody else. He identifies mispricings in real time, and not only does he purchase various funds that are mispriced,
he then goes about agitating for change. One of the areas that he had been doing this with in the past was spas, and we've talked about that on our previous recording with him. Lately, he has been agitating for change in closed end funds that are trading at double digit discounts to fair value. A closed end fund trades like an ETF, but it's constructed of holdings like a mutual fund, and the actual closed end fund will trade
up or down simply in response to trading supply and demand. Anyway, rather than have me babbel, here is our extra special edition live from future Proof Miami At the Money with Boaz Weinstein. So let's start talking a little bit about what you actually do. You have been delivering equity like returns with credit like risks, with bond like risks. That's quite a trick. Tell us a little bit about the areas you focus on.
Sure, So I've had my firm for sixteen years to hedge fund and we have three publicly listed vehicles, one of them being an ETF, and two closed end funds on the New York Stock Exchange. And and I've been working on Wall Street continuously other than when I was
in school, since I was sixteen. And you know, over that time, I've had the chance to be right sometimes wrong sometimes and also seeing how people that were right for a while, and you know, people worshiped to Garzarelly or copy Wood or you know whoever the flavor of the of the period was. But eventually we realize how hard it is to know where the markets are going
to go. And and sometimes we excuse ourselves because we say, Okay, it was a surprise, it was nine to eleven, or it was COVID, But predicting the markets is really tough. And and you know, I say this, We've been in a bull market, so beta has paid off, but it's not always going to And I always was very focused
on arbitrage. I was always interested in miss pricings, not having the beta being long one thing short another thing, looking for miss pricings, whether it was in the spack market when they tumbled and they had bond like risk, as you said, with some equity upside, when they were trading below their redeemable value and they were in T bills,
and about ten years ago, twelve years ago. Now I got very interested in a product that many of view in the audience are familiar with because it's a retail product, which is closed end funds. Now, if I asked for hands, who knows what a closed in fund is? I think almost everyone's. I didn't even ask, and that guy stuck his hand up. Okay, so people know what they are.
I just want to just take a second, though, because what I love about what we do in closed end funds is that it does not require us to think we know the future, the direction of markets. But as you all probably know, there's about five hundred of them, about half are in the UK, half are in the US, small number in Australia and Canada. And often they own public securities, maybe entirely public. Sometimes they own illiquid private securities, reads,
private equity, music, royalties, all sorts of exotic things. But I've been focused on the public security side. So funds we see actually the sponsors of them right here front and center. We have Blackrock, we have Devine has dozens of UNI funds. Blackrock has about eighty of these closed end funds. And you can check every day on Bloomberg or elsewhere what the NAV is, and there is no disputing what the NAV is. The NAV is calculated off of the closing price, so all of us would agree
with the NAV is. So you have the NAV, you have the price, and those two things are often not the same. And when the NAV is at a big discount, it isn't necessarily an opportunity Barry, because it can stay at that discount for a decade. Why should it not become a bigger discount. Who's to say that that's money well spent. Maybe the discount reflects the manager's fees and
the investors' inability to change. So what we've done is we've come in with an institutional great offering, be it our private funds or our publicly listed funds, and we bought seven billion of closed end funds. So we're the world's largest owner of closed end funds, And we didn't just buy seven billion willy nilly. We pick the ones with the biggest discounts, with the best language, with the managers that are going to be most in our view likely to do a deal. Because here's the where the
rubber meets the road. If you buy a dollar of nav for eighty six cents, and even if it takes you two years to turn eighty six back into one hundred, you have added equity like returns on top of whatever the underlying return is. And sometimes underlying return is it's Muni's you know, it's things we want. And so what I found over time is that the bigger we got, the more votes we got, and the more we got
management to take steps. And I'll pause in a second, give you the microphone back to press a button and immediately give everyone eighty six back into a hundred. What are those steps? Open end a closed end fund, make it into like an ETF or a mutual fund. The discount disappears overnight.
And that's because of the arbitrage opportunity.
That's because yeah, ETFs are redeemable. There, you can create them, you can redeem them. Mutual funds have the manager has to sell and give you navback, and so open ending a closed end fund, no one disputes, will give the entire discount back to the investor who has suffered in it, if they bought it at IPO or otherwise. And so if you think about it, we're not talking about small potatoes. Eighty six to one hundred, by the way, is more than fourteen percent, and I think you all know why
one hundred to eighty six is fourteen percent. So you know we have been successful in getting it done faster and faster because as we went from a billion to three to five to seven, our ability to vote the bums out as they say if they don't do what's right for shareholders and put in a board that will is now causing managers to increasingly take practice steps to narrow the discounts before we ever get to their their board meeting.
So let's talk a little bit about that move from two billion to seven billion. When I had you on Master's in business, you had a chunk of money in spacks, and we could talk about spacks a little later, and you had a chunk of money in closed end funds, and part of the conversation was the difficulty in getting entrench management's attention to say, hey, why are you selling dollar bills for seventy five cents? Why aren't you unlocking
this value? Tell us the process that led you to go from two billion in closed end funds to seven billion.
Right so, and unfortunately they're not the ones selling a dollar for eighty five cents. It's the frustrated shareholder that has seen it sit there and they have no way to get back to a dollar without without us because they're small investors. And so over time we started to get more successful at it. Thanks for mentioning, you know, we got these kind of institutional awards and all of a sudden, institution US state pensions looked at this as an.
Alpha that they don't have in their portfolio.
So, you know, if they give us an often institutional ticket is over one hundred million dollars if we from a state pension we got four of them in the last two years. It allows us to get bigger, faster, stronger, so that we don't have to have a fifteen percent position in the fund. If we have a twenty nine percent position in the fund. Management is very worried that we'll be able to cause the fund to liquidate and
they would lose one hundred percent. And so basically they know that something screwed up that they could have given up a little bit of fees to shrink the fund buy back stock, buying back a dollar for eighty eight cents is a creative to make their investors' money. But it's always really a question of you know, greed, where the manager says, I.
Don't want to do that.
People should be patient, whether it's been a year or five years, and they don't want to shrink their fund. And if they wait too long, I'm going to shrink their fund for them in a much more severe way. And in two kse is, actually we replaced the manager and we were nominated awarded with the mandate. So we now run two of these funds. We have two closed end funds of closed end funds, and so you know, it's really just like a fight between two asset managers
that have a vested interest in themselves. But also I'm invested alongside the shareholders. I want what they want. I want a chance to exit at an ev if the investor doesn't want to, if you open end the fund and they stay, great if they if the manager tenders for shares at NAV and you don't want a tender for some reason, your loss great. But my view is that just because this thing iPod in nineteen forty nine, by the way, there's one in the UK iPod eighteen
fifty five. Just because at iPod in eighteen fifty five doesn't mean until three thousand and fifty five the shareholder has to suffer under the discount because they signed up to have to elect a board, and the board is supposed to be working for shareholders. And what I find as a patriotic American capitalist is that over in the UK the boards have not forgotten that they're working for shareholders, much more than in the US, where often we have
to face entrenchment. One of the things we have to do that our shareholders don't is pay legal bills and go to court as we as we have successfully suing for our right, for example, to vote all of our shares. So it is a scrappy fight. But in about eighty instances now we have gotten management to give investors a chance to exit at any v or close, which they never ever would have done without us.
And the returns of a closed end fund that looks like a sixty forty portfolio, you've been generating returns of about twelve percent, and a lot of these products, your competitors, the other activists in the space, have been underperforming that. They've been doing about four percent, which doesn't seem especially exciting. What are you guys doing so differently with closed end fund challenges that has led to this the track record and the success sabas put together.
Yeah, so I think you're referring to our ETF. The ticker is CEFS like closed in funds pleteral. And actually those other competitor products are not activists. They're in fact not you know, it's not that they're sometimes they're just trying to find closed in funds they like, or maybe it's more like an index approach to closed in funds.
And if you buy a closed in fund at minus fourteen and a year later it's still a minus fourteen, or you've paid the manager of their fee, You've also charged your investor of the fee, so you have kind of two layers of fees. So you better be narrowing that discount or you're you're not delivering alpha, and so not some of them are here, by the way, Invesco has a product called PCEF. And what I also find interesting in this space is that it's so retail centric.
And you know, if Morgan Stanley Wealth Management has recommended PCEF, it will grow more even at making four percent a year than then the same underlying clothed in funds making twelve percent a year. So I think PIECEF probably has grown more than us in the last five We're actually celebrating our eighth anniversary of this ETF. And so yeah, so if you're not. If you own one hundred clothes in funds and the only ones that are narrowing are the ones sabas in, you're gonna have a pretty mediocre
return after fees or all of ours. I do not buy a closed in fund where I feel like, if it doesn't narrow, I'm not going to go to management and say, please, you have easy steps to make it narrow. Do not put your own greed in front of your shareholders.
You just had an interview in the Financial Times last month, and I love the quote, I love punching a bully in the nose. Tell us what you were doing in the UK and why the Financial Times decided to have a sit down.
With you so.
In the UK the market is even older than it is here, and it's actually like there's a lot of pride about They're called investment try there it's I think forty percent of the foot seed two fifty or these investment trusts. People seem to like them. They get to go every year and sit in a meeting and hear about the economy and have a have a ribbi and you know, even if the manager has underperformed or outperformed,
there is a lot of love for the product. But what happened was in twenty twenty one when we had inflation and we had a crisis in the UK, the LDI crisis, and people were selling things. And then later even in twenty twenty four, they increased capital gains taxes and it caused people to want to sell in front of that before the new tax code. And the problem with these products is they don't have natural buyers at low discounts. Only really savvy investors that look for a
double digit discount are there to buy them. So they can fall like a knife from minus one to minus thirteen and with enough selling, no matter how big we are, even at seven billion in a five hundred billion space, you know that that discount can grow. So in the UK there was a lot of sell thanks to these two problems, and we ramped up and we bought twenty nine percent positions and some of these funds, and only then were they willing to do things that.
They are now. We're now currently engaged.
It's in the press with four of the boards and two of the other boards have already agreed. We're going to give investors a cash option to exit an NAV open end or tender, and that's what we wanted. If you want to keep your if you want to keep getting your your steak dinner every year, and you want to stay in your closed in fund, whether it's underperformed by forty or outperformed by eight, which were two actual
funds in question. Fine, but there is a set of shareholders, not just us, that if you offer them a chance to get out at an av they will take it because they're not foolish. They'll make a twelve percent gain. Your portfolio literally goes up by twelve thirteen percent in a day if it wasn't if it was instantaneous. And then you take that money and you do something else
savvy with it. You buy another closed in fund at a discount, or you buy an open ended fun So you know, to no one in this audience, will it be a surprise that if you offer someone a free thirteen percent with no consequences, they're going to want to take it. But it took me getting to twenty nine percent for the managers to want to do something about it.
And so I sent a letter on December eighteenth to seven of them at the same time, saying, and you have the right in the UK with a position size above five percent to call an annual board meeting and they have to hear they have to vote on any proposal. And I sent a letter to seven funds and my proposal was replace all of you and replace them with us. So it was very aggressive, and they closed ranks. They did all sorts of things to get the vote out.
They did phone voting. Can you imagine an election where you call on the phone and you say, I don't even know what they said. They said, we think it's better if you vote against SABA and vote with your manager. Do you want to do that? I don't know if they got the right person on the phone. I don't know if they gave me a fair hearing, but they actually took phone votes as the main way to reach
their holders, and they defeated us on that proposal. And then the telegraph said we need to send that American home with his tail between his legs. And then somebody wrote, Okay, he stuck. What's he going to do?
He lost?
What's he going to do? And I'm like, I'm not stuck. You're stuck because now everyone knows the score is, let's say forty two to thirty. You got forty two percent of the vote, We got thirty. If some of you in the audience buy this fund at minus ten, I'm not a group with you. You go and buy it at minus ten because you want the discount to close.
If collectively the arbitragures of the world buy ten percent of it, my thirty is forty there, forty two is thirty two or thirty three if they buy some unvoted chairs. So we're in this kind of very uncomfortable spot right now. This is very recent where there's these funds sitting out there and everyone knows the distance between us losing in us winning, and so I'm in negotiations with them, but just to say, because what are we talking about is
it small potatoes? There is thirteen billion pounds on in the UK market of just publicly traded underlyings, no ill liquids where you worry about the NAV one hundred percent public, ninety nine percent public. Is thirteen billion pounds of trapped discount. So if somebody snapped their fingers, Charlie Munger rest in peace, Emperor.
The world's kind of conversation. If you opened all closed end funds that are just public, the British pensioner and some institutions would be up thirteen billion pounds, the same kind of number in the US. So we're talking about real, real money.
So it's thirteen billion there, about thirteen billion here. It's kind of unfathomable that the efficient market has not found a way to close that gap, unless you're the actor that is on behalf of the efficient market arbitraging the gap. Tell us a little bit, why all this money's lying around and nobody else has come up and closed this discount yet.
Well, so activism is hard. You make enemies. I don't need to be Nuvine's friend. They're down, they're down the way.
When when we had maybe there's someone here from Newvine so I can someone's okay.
Fine, So here's what Nuvine did. Federal law in the Investment Company Act passing Congress in nineteen forty says, every share gets to vote. Every share gets to vote. Sound good, Every share gets to vote. The lobbying industry for the industry, got in state law something that says, well, they can limit your vote because no one investors should have an undue influence. You know, like we had federal lobbying different than state law for whatever, for marijuana, for whatever it is.
You can have these at odds, and they limited our vote. We had like twenty percent of a fund. They'll let us vote nine point nine nine. So we went to court and the judge did not need to hear the case. The judge decided on summary judgment that Nouvene had broken the law and that they hurt our ability to vote all our shares. And Nuveene appealed and the appellate court rejected unanimously Nuvine's appeal. And then a different manager did the same thing and we had to take that manager
to court. So you know, it's to answer your question, it's not easy. You have to be willing to roll up your sleeves and pay legal bills and fight, you know those kinds of battles. You're not just paying for one fight. It could affect the next fifty, right if you can get the law to change, you know, to be clear. So not everyone's willing to be activists, and the activists are not so happy to run a foul
of the managers who they need. If you think about an amazing manager like Blackrock, the Biggest right, why would it make sense for an activist to fight with Blackrock about their own closed end funds if they need to go and lobby them on Disney or you know whatever, Nestley, whatever it may be. So I'm in this weird place where I'm willing to just be an activist in my
own space and asset management. And then it's not really an arbitrage barry because these funds can stay it discounts for decades unless someone is going to go, you know, go to the mat and have the buying power to get there. They are not arbitrage is they're actually and you're you're right, I mean a lot of there's been papers by Nobel Laureate economics professors in Chicago about the
puzzle of the closed in fund discount. But it's not really a puzzle if you don't have a mechanism to narrow it, and you do the mechanism to elect a board and right now, the industry went to the New York Stock Exchange right now meeting the last year, and said, oh, we don't need those board meetings anymore. And they convinced the New York Stock Exchange to put forward a proposal to say the board meeting is not mandatory, even though
it'd been like around for ninety years. And they kind of trick them by saying, well, we did this for ETFs, but ETFs, you don't need an annual board meeting because you can always vote with your feet and exit at NAV and closed in funds are very different. You need your voice, you need the ability to elect a board. So the SEC put out a twelve page paper saying this is not going to fly, and now they're coming
back with Trinevan, a new proposal. The NYC hasn't decided yet on it, but basically it's a very tough fight. But it's a big fight because we're talking billions and billions of dollars even and just recently we made a very nice deal, mutually beneficial deal with Blackrock. We love Blackrock now they love us, and and and So the next day two tickers Bim Easy and Big Z, two tickers. The very next day, someone's giving me a fist pump. Do you own those tickers? Okay? Well morphas Oh I
got okay. So the very next day, those two tickers combined market value was up two hundred million dollars. So if you think about like somebody goes to McKinsey and they're going to try to tweak, you know, please help our company do like you made two hundred million dollars because they announced a buy back tender. So there is enormous sums of money that that gentleman and that gentleman and this semi gentleman can can can achieve by buying discounts.
It's not that complicated. It's so much easier than what you know, Stan Druckemeler, you know, does you buy discounts and you buy them over and over and over again, and then you have shares and then you vote them if they don't do something about it. And more and
more the managers are doing something about it. So I wanted to say to all of you, for those of you who are not invested in this space, that it is I think an enormous opportunity, especially when markets are a little bit expensive to a lot expensive, to try to earn a a very nice return from something that doesn't require the market to go up.
So I want to talk a couple of things about that. I want to talk about what you're buying, but I also want to talk about the difference from when you're a two billion dollar NAT annoying the big closed end funds to a seven billion dollar Hey, we could take a substantial position in this fund. We could take fifty one percent.
And vote you out.
Tell us how the process has changed as you've accumulated more assets under management. Are they taking you more seriously? The fact that Blackrock cut a mutually beneficial deal with you sounds like, oh, boaz is kind of a pain. Let's just let's just hear them out. Has it changed over the past decade?
Well, look, they know that they their shareolders made two hundred million dollars the next day. And actually that's not even all of it, because the act of tendering is not even hasn't even occurred. So it was like an initial gain and then there's some more gain to come between the end of this month and I think May or June for the second fund, so it's real sums of money.
They can look good. We had a very.
Actually very professional negotiation with them, and we're very happy with the tone in both directions. So what they are doing separate from us is I think they've decided that these discounts are not worth the damage to the brand. I'm not talking about that manager particularly, there are a couple of managers who are now doing things like if you look at the yield on closed in funds one year ago or a year and a half ago versus now, it actually went up three hundred basis points even though
rates didn't go up. The reason they went up three hundred basis points is the manager decided to bump up the distribution. And I'm of two minds about it, because there are some funds that used to have a six percent distribution and went all the way to twenty or fourteen.
So it seems a little bit like.
A little bit I don't know what the word is, but like if one day you're able to pay six then all of a sudden you're able to pay twenty. Do you think that the dentist, the really nice dentist who you know, has a chain of dental establishments, understands that that fourteen is a return of your own money. Could you put a dollar in the assets are only earning six, they're giving you six, but then the next day they're starting to give you twenty. What's that fourteen?
That fourteen is your own dollar coming back to you. And what happens is and you guys will know this. People will go in morning Star and they'll sort by yields and we'll say, amazing, look at this manager, and I get to have twenty percent, and I get to have growth equities. Sounds like the greatest thing ever. And they will bid up those closed in funds and the discount starts to go away. And there's some of them that even traded a premium, and so that's all fine,
but they're there's no alchemy in finance. And at some point, if they cut that dividend again, you can have a fifteen percent loss, twenty percent loss in a single day. Otherwise that fund is just going to shrink and shrink and shrink, because it's shrinking by that fourteen every year.
So so, but just to say, managers now are taking steps without us to return capital to investors at an ev through over dividending, through tendering, through other discount management plans, and in the UK, to their credit, they actually are replacing managers that have underperformed with better managers and that can cause the funds to trade better. So so I like it because it helps my existing portfolio. You know, I do wonder, well, what if this whole thing goes away?
You know, that's kind of an interesting topic, but it's been around for this discount for a century. I don't think even with these steps, I don't think it's going away.
And what are in these closed end funds?
Is it bonds?
Is it equities? Is it convertibles? What are the publicly traded and traded holdings that these closed end funds tend to hold?
Right, So I'm not going to recommend my own fund overtly. I'm gonna do it telepathically to all of you, okay, because I can't overtly tell you to go invest, you know, just let me do it and you relax at the beach. But I'm going to recommend another fund because I do want to give a ticker. You know, it's kind of the right, you know, nice thing to do, and it's actually a fun I recommended some months ago at Grants.
I spoke at Jim Grant's like conference, and at the time we had a two percent position, so we were really quite small, but I didn't mind recommending it, even though we're buying it. We now have a seven percent position, and the ticker is g DV like gold does vary. I don't know someone have a better one from that. And it's a Gabelly fund. And Gabelly has a number
of funds that traded premiums to NAV. What premiums TENAV like, you know, even one of them has a sixty percent premium, so you can have funds at premiums also, which is another story. But this fund's at a double digit discount. It's at a thirteen discount. So you have a fund whose biggest holding is American Express, it's got JP Morgan, it's got Google. I believe, it's got those kinds of stocks.
And it's three billion. But if it was at NAV, it would be thirty it would be fourteen percent more than three billion, So you were talking literally about four hundred million dollars to shareholders if it was open ended or if they somehow found a way to erase the discounts. So I like it because it's nice to be able to take a two hundred million dollar position in something, and we have positions as big as four hundred and
fifty million single funds. But so that's one that you know a lot of people here could buy at minus thirteen. You like the portfolio. The fees are high because these fees were set long ago. There are about one hundred and twenty BIPs, so I have to think about that. But there is a lot to do in the US and the UK right now, especially because the speed at which we're narrowing discounts has gone faster.
So you mentioned you just alluded to something I want to follow up on. There are five hundred or so closed end funds between the US and the UK. About if I recall you saying this correctly, about one hundred of them trade at a double digit discount to NAV How long can this go on for? Are you gonna put yourself out of business by creating all this value or is this something that is going to persist forever?
So when these funds are not trading in discounts. The market can grow. They do secondary offerings, they bring new IPOs for that new hottest esg. You know, tech, whatever it may be, whatever the the thing that is sellable, and and so there there have been a shrinkage in the number of funds, but that's generally because of merger.
I don't believe I'm gonna put myself out of business because because as much as big as we are at seven billion, again it's five hundred, so we're now we are seven out of a much smaller set of interesting funds. But lo and behold, if the market sells off, you know, I'm not gonna be able to keep to keep it from from selling off in my names either. And like when twenty twenty happened, all of a sudden, almost every
fund was interesting. And that's the thing is if a funds at minus fourteen and you have a big sell off, yeah, I can go to minus twenty usually comes back pretty quickly. If it's at minus one and you have a big sell off, it can go to minus twenty just as quickly. And so there isn't a safety net where you would have people to catch it, you know, people say, wow, at minus six sixteen seventeen, I like it even more so. I do think all sorts of funds that we were
historically activist in or not one of them. By the way, it's a fun we were activist in that we shrunk it shrunk. It's trading now at plus one, and they've done two rights offerings. They've grown that fund. So I think the industry when it's not at a discount, can issue. When it is at a discount, it needs us even more. And we also, even when it's in the normal state,
are cleaning up the weakest, biggest discounts. And I think, you know, ironically, we're in some ways an ally of the industry, even as an activist, because we're making it possible for them to bring new funds. You all obviously followed the saga of Bill Ackman trying to bring a
twenty five billion dollar closed INN fund. If you, you know, think about location, location, location for real estate, what is the reason why he couldn't bring a twenty five billion or even a much smaller closed n fund discount discount discount. People were worried, if I buy it at IPO, what if it goes to a discount, I'll look silly. What's the mechanism to stop it from going to one hundred to ninety? And maybe that's even not an unlikely case.
And so the protecting against the discount having a having a discount management policy. If it ever gets to X, I'll buy it back, that kind of thing. I think that's the way forward for the industry to be able to issue more of these things. But it is challenged because you all know as well as I do about actively managed mutual funds, low cost ttfs, and so you know, there is some theory, Like when Heard on the Street wrote about my case in London, the journalist is basically like,
what do we need these things for now? That offended a lot out of the UK market. Some of them are not needed, Some of them that have truly liquid assets are needed because an ETF would be the wrong rapper for it. So I do think there is a home for closed end funds, and I can't get enough of them. I like, really, for twelve years, have just been interested in the house and wise it changes what regions,
what product types. Right now, the most interesting are equities you're asking, you know, just run of the mill public equities, and the UK is more interesting on average because the governance is better.
So look the name of your ETF. The symbol is CEFS closed end funds. But you ended up taking over to closed end funds yourself as managers. Tell us about those? How did you end up running these? And what's the performance been?
Like?
What's the discount look like today?
So there is a manager Voya that had a fund. Seeing some heads nod, and we bought twenty four percent of the fund. There was an election coming up, and some days before the election, they announced that for the better of shareholders, they thought the board thought that instead of us just needing the majority of the votes, which is usually I think about elections, you know, we would need sixty percent. But it wasn't even only that. We wouldn't need sixty percent of the votes. We would need
sixty percent of all shares voted or unvoted. And I think they got something like fifty six percent to vote, so we would needed like sixty We needed more than every vote. Okay, So we took them to court. It was in Arizona. And you know it's always funny, like if you've been in legal disputes and discovery, you're like,
wait a second, how would you do that? Knowing that we would get to see the source documents, and there was some documentation that they were worried about losing the AUM to our action, and it was really too entrench which the board is supposed to be working for shareholders. It seems like they're working for Voya. So we took them to court and we won, and Voya resigned as manager and they said they'll stay as manager until we can find a new one, and we changed the mandate Barry.
It was all hygold loans, and in a very opportune time, we sold all high old loans between June of twenty one when we took it over and the start of the twenty twenty two bear market, and we replaced it
even yield. So sell a single B loan or a double B loan at three fifty over library it was called at the time, and sell it at three fifty over, and then buy a spack at three fifty over because they were trading at a three and a half point discount to their one year maturity date, and you would basically still earn your three fifty but you would have gone from single double B loans to triple at bills in a box at you know, JP Morgan or Bank America.
And then twenty twenty two appened and we were out of two hundred and fifty seven closed in funds, we were the number one performer. So we got very lucky. I'm not going to be able to do that magic trick again. And you know, I would have been very happy to be twenty fifth out of two fifty, but instead we were first. So you know, it did not change. Our fund is still trading at a discount, trading at like a one of them's at a seven, one of
them is at a nine, but single digit discounts. But but I want to tell you is that my general counsel said, I'm going to spare you the second story. Do we really want to run one of these? Because what if we do badly and what if they say, you see, it's not so easy? And I said, I really want to run it to show that there is a better way. I'm going to change the governance how
votes are cast to be friendly to the shareholder. So it used to be that let's say the election was staggered, We're going to do it all in one year, so you can you can get us all out in one period, change change it in other ways, and we're going to offer shareholders and exit near nav and we did that in both funds, so something that you know, we're often not able to get the managers to do with that coercion.
So so I run two funds. The tickers are SABA and BRW and but you know, sometimes people look at the tracker and they don't realize we only took one of them over a year ago, fourteen months ago, and one of them about three and three quarter years ago, So that's been great. We changed the investment type to include SPACs, but right now they mainly own closed in funds, So I have a product which is closed in funds
mainly of closed end funds. And what's kind of fun about that is I took their capital and now I have their capital working against them because I'm buying their own funds with that capital to then vote against management and hopefully get all of you and me anyvy. And that's been really fun again because I don't have to read the Wall Street Journal. I mean, I have other reasons to read it, but this is a space where like, can you turn eighty five cents back? Into a dollar
or not. And it's it's just a it's it's it's not easy, but it's it's totally different than regular investing.
So I want to sum up your part of your investing philosophy as a statement you once made, I don't make directional bets. I make miss price bets. And that's a huge change of perspective. How a lot of people in finance bet deep down inside? Doesn't that mean that you're just a value investors? Is that the space is? Are those the waters you swim in?
Yeah? But I'm never well by the way.
Those three funds you know, have beta to them, but most of my assets are are hedged, and I even managed tail protection money for different pension funds. I think people are a product of their vintage, you know, like when you hear about your grandfather grew up in the war and whatever and that's why he's all cranky or whatever. But you know, I grew up in a period of war.
For the markets, I had a trading book in nineteen ninety eight, right when Russia was defaulting, and then like three years later was you know, Enron, and then was nine to eleven like two months after that, and six months after that was WORLDCLM. So, so my vintage was not to be directionally long, and it was not even in my makeup. It was more to be an arbit treasurer. Isn't that value?
Yeah?
Arbitray is value. But I also think you have to find like your niche and where you're comfortable, and I'm most comfortable where a is mispriced to be and and I can actually put both legs of the trade on.
So in the last two minutes or so we have I want to talk about your ETF because it's relatively new to see somebody with your background in that space ce f s. Who are the buyers of closed end funds ETF and what's what's the investment target? What are you looking to generate in a fund like that? And then what are the holdings?
Yeah, so I'll be a little careful because I don't know exactly.
I don't I don't want to market. Okay, you're you're You're I'm asking question.
I'm asking because I'm fascinated by this product. And anytime there's an opportunity to say to clients, hey, we're going to try and get you equity like returns with bond like risks, people sit up and pay attention. There aren't a lot of credible products from managers I could market for you. There aren't a lot of credible products from managers with as long a track record as you've amassed that people don't really know about. This is a relatively unknown product that really checks.
The bout all right.
And to just to as a disclaimer, we've owned it in some periods almost all fixed income, and now we happen to own mostly equities, so it's not bond like risk, it's bond and equity like risk. Let's say, so, we've seen it grow every year. We had no distribution plan, we had no distribution.
It started with like a.
Couple of million dollars and maybe it's now two hundred and fifty five or so. It gets creations every few days. So I think some value investors have thought to say, Okay, I know this is a space that's interesting, and I have the state your track record, and instead of buying it after I read that SABA about it, why don't I just give it to SABA and let them do their thing.
That's the name of my firm.
So so I think it's got a pretty dispersed shareholder base. These products have grown. There's one I think that Amplify has. I think to take her for that's wyy why And I think it grew over the same period more than we grew, and it again had you know, less than one third of the return that we had. So I
do look at the market as highly inefficient. That you know, if you have somebody doing something for eight years and is very similar to someone else and one made twelve, one made four, it doesn't you would think by year seven or something, you know, you would start to out raise them. I'm not very focused on how big it gets because almost all of our AUM is in our hedge funds. I just think it's really neat to have a product that mom and pop can invest in that
is no incentive fees. It has one hundred and ten bit management fee, just to say, because sometimes people get confused and the fact that the funds themselves borrow money at SOFUR and have their own fees that get impeded into our expense ratio. People get confused and think I've read it on Seeking Alpha that we charge five percent or something, but no, our fee is one hundred and ten BIPs. You don't even keep all of it because we are are if a firm that's helped us structure it.
So I just think it's nice to have an ETF out there where people can get kind of sabalite if they want a lonely product. And so it holds mostly US equities through closed end funds of venerable managers like Blackrock and you know PIMCO.
So, as Boaz discussed, he runs a hedge fund SABA Capital. It's about seven billion dollars, but he also runs an ETF of closed end funds. The stock symbol is cef S. It's a little over two hundred million dollars in assets. You get to participate in the same strategy, only in an ETF, not a hedge fund. Investors who are looking for relatively steady gains with modest volatility. The activist approach has proven successful in identifying closed end funds that are
trading at a discount. This is one way you could get that exposure. I'm Barry red Halts. You've been listening to Bloomberg's at the month