A few years back I discussed the "Marketing Achievement" of Kayne Anderson in the closed-end fund ("CEF") space. Marketing achievements tend to add to an advisor's revenues whether the shareholders are served by such acts, or not.
This week, CEF Kayne Anderson MLP Investment Company (KYN) announced the issuance of 6,200,000 additional shares at $36. The $223.2 million public follow-on offering raised $214.3 million relevant to Assets Under Management ("AUM") for Kayne Anderson. Those figures exclude 930,000 additional shares that the underwriters may purchase pursuant to a 45-day option to cover over-allotments. Such additional shares would be relevant to Kayne Anderson's AUM and revenues for the offering's selling agents, of course.
More info on KYN
There is no shortage of SEC filings for KYN within the CEF Peer Group. Interested parties would be wise to keep up with them all. For purposes relevant to this piece, the following comes from KYN's annual report filing (year ended November 30, 2012).
Technically, the Advisor for KYN is KA Fund Advisors, LLC. Subject to the overall supervision of the company's Board of Directors, the advisor manages the day-to-day operations of, and provides investment advisory services to, the company. For providing these services, said advisor receives a management fee from the company. After deducting a current fee waiver, Kayne Anderson is earning 1.25% on marginal AUM. That is not an expense ratio. Rather, the advisor's billable rate is relevant to forecast the additional $2-$3 million annualized fee Kayne Anderson will be paid based on the additional AUM raised.
Comparing the Adviser Benefits to the Shareholder
Obviously, the precise AUM benefits to the advisor of the offering will vary over time based on performance of the underlying MLPs that Kayne Anderson invests KYN's capital into. Point is, the offering looks like another marketing achievement for Kayne Anderson. Fees are essentially annuities. They are paid not for one year. They are paid in perpetuity, absent the advisor's termination.
The market price of KYN traded down $1.60 per share on news of the offering, in excess of 4%. Based on data at CEFConnect, there was no change to published Net Asset Value ("NAV"). CEFConnect's data lists 88,431,413 shares outstanding. With no apparent change in NAV on an up day in the market, KYN shareholders in the aggregate lost $141,490,260.80 in market value.
I am "short" 100 shares of KYN in my long/short opportunistic style account with my data licensed to Covestor. So, I benefited by $160 yesterday. I don't consider that a large magnitude. I mention this only because I benefit inversely to KYN shareholders. My negative perception of KYN as a marketable instrument should be read with full awareness of my short position. In the case of this offering of course, the long shareholders may be also asking whether Kayne Anderson benefits inversely from KYN's shareholders.
After the decline, KYN traded at approximately a 7% premium to its NAV. Such is suggestive that the assets inside KYN are worth 7% more because of the value added by the CEF's governance and its advisor. If that is appropriate, it is me and others who doubt such who are likely to be the big losers. I actually have a positive view of the MLP sector in general.
Other News in CEFs
Boulder Growth and Income Fund (BIF) recently announced a July dividend. It has not paid a distribution other than end of year since its monthly distribution policy was suspended in November of 2008. BIF trades below 80% of its NAV and I'm long in several accounts.
Liberty All Star Equity (USA) and American Strategic Income III (CSP) are recent subjects of Activist Filings (1, 2). A proposal was submitted to terminate the Advisory Agreement of USA. Such is generally seen as an activist's last resort. A proposal was submitted to consider taking steps to provide liquidity at NAV (ie: open-ending) in CSP. Both trade at discounts in excess of 10% and are long holdings in my CEF Activism Profile account, licensed to Covestor. I am neither an Activist nor a Registered Investment Advisor.
Additional disclosure: I am long BIF, CSP, and USA.