On Monday night, a liquidity program for three DWS Closed-End Funds was announced. The affected funds were DHG, LBF and DRP, each of which I am long in Covestor model accounts disclosed in detail at the conclusion.
Where these should now trade, or precisely to what extent the news is good may be most clear for DWS RREEF World Real Estate Fund (DRP). DRP is being merged into an open ended mutual fund. For those who have not already owned DWS Dreman Value Income Edge Fund (DHG) and DWS Global High Income Fund (LBF), the limited scope (25% of outstanding shares) of the cash tender offers is an important detail to consider because it would appear the shareholder base for these funds has become reasonably savvy. Depending on where they trade, I may take profits and add to positions, or do nothing.
The real takeaway in my opinion here is that Western Investments has proved itself as a resolute and ethical Activist Investor. The liquidity program was announced in conjunction with a standstill agreement with Western Investment, a prominent Activist Investor whose advances DWS had fought tooth and nail. Western’s own partners are obviously huge beneficiaries of its accomplishments, but no imbalanced benefits are apparent.
DWS’ Closed-End Fund governance directions had allowed Western to first accumulate GCS (now merged into an open-end fund) at a large discount. Rather than unlock shareholder value significantly, DWS attempted to evade a large liquidity event with miniscule tenders, insufficient to recalibrate supply and demand. In my view, it's now taking the same approach in European Equity Fund (EEA) and New Germany Fund (GF). Western did not back away; its resolve only grew. In 2009 GCS adopted a control share resolution to freeze Western’s voting block, and avoided having an annual shareholder meeting at all.
Western Investment stayed the course and remained focused, an equally challenging attribute in any investing style. It is my opinion that Western Investment prevailed and in doing so benefited all public shareholders in the ultimate resolution for all four DWS Closed-End Funds by taking high ground and proving resolute. While fighting shareholders in a battle that in the short term protected its advisory fees, DWS may have revealed much of its underlying business philosophy. Before the battle concluded, proxy voting advisors evaluated the landscape with unobstructed vision.
In my view, Western Investments has cemented its elite and ethical status among Closed-End Fund Activists. As a Closed-End Fund nerd myself, observing the bases clearing conclusion of this nine inning battle made for a great warm up to baseball’s playoff season. I just wish this battle had played out a week earlier because this would have provided great talking points in last week’s Closed-End Fund webinar.
Disclosure: Long DHG, DRP, LBF, previously long GCS. My long positions in DHG, DRP, and LBF along with my other portfolio and trading activities are licensed as data to Covestor Ltd. (“Covestor”). Covestor is a Registered Investment Advisor that uses my trading data in effort to replicate my actions for its retail investing clients. Long positions in DRP and LBF are licensed to Covestor’s publicly available Taxable Income model. Long positions in DHG are licensed to both Taxable Tncome as well as the publicly available Core Total Return model.