The Boulder Group: Interesting New Family of Closed-End Funds

Includes: BIF, FF
by: Robert Lewis

In recent years, a group, apparently headed by John S. Horejsi and his sister, Susan L. Ciciora -- who I know as The Boulder Group -- have developed a complex of four closed-end funds. I believe they are based out of Denver, Colorado.

I first heard of them when they launched an attack against Deutsche Bank (NYSE:DB), the manager of two closed-end real estate funds, SRO and SRQ. These funds had first come out at 25 a unit but were selling at I belive $1.34 and $0.75. Deutsch Bank simply wished to liquidate them, but The Boulder Group sought to keep them alive for their entity values and tax loss carryforwards. The Boulder Group won the first round and defeated the liquidation vote, but eventually was itself defeated.

All the funds have high expense ratios, very different portfolio philosphies and sell at among the highest discounts to net assets of CEFs. The substantial discounts, as always, appeal to me greatly. I would like to talk about all four funds in order of their size.

First Opportunity Fund

FOFI (NYSE:FF) is traded on Nasdaq, and before being acquired was known as First Financial Fund, specializing in financial companies being primarily banks. The Horejsi family controls 36.41% of the shares. As of September 30, 2010, FOFI had assets of approximately $238 million with unrealized losses of approximately $ 40 million, to be offset against future gains.

FOFI has taken steps in the past year to invest 50% of its assets in four separate hedge funds. It was for this reason that it left the NYSE to trade on Nasdaq. The NYSE frowns upon investment companies investing in hedge funds. It may be for this reason that the fund trades at such a high discount from net asset value.

Two of these hedge funds specialize in the financial services sector. One of them seeks value stocks, opportunities and contrarian approaches. The last hedge fund invests in the health care sector.

FOFI also has substantial investments in the following sectors:

Banks & Thrifts: 15.4%
Savings & Loans: 9.3%
Indian Stocks: 7.9%

I would not invest all my money in FOFI, but it does seem interesting. I have no way of evaluating its hedge fund holdings, but the management of the fund seems to have put its money where its mouth is arnd owns a very substantial portion of FOFI. The discount is also enticing. I think it is worth a shot.

Boulder Total Return Fund

BTF is traded on the NYSE, with 42.15% controlled by the Horejsi family. It is a leveraged fund with, as of November 30, $230 million in gross assets, of which $72 million is financed by taxable auction market preferred stock.

Its holdings seem to be extremely unique. Its major investments are as follows:

Berkshire Hathaway (NYSE:BRK.B): 39.5%
Foreign stocks: 10.4%
Short term investments: 7.0%

I have no opinion about Berkshire Hathaway, although it appears to be a fine company selling at a discount from net assets. BTF also sells at a substantial discount from net assets. It does seem like a good way to invest in Berkshire Hathaway at a discount and with leverage. The management of BTF has a substantial interest in the fund and obviously feels that way. Again, it is worth the shot.

Boulder Growth & Income Fund

BIF trades on the NYSE and is 33.88% controlled by the Horejsi family. It is a leveraged fund with, as of November 30, $190 million in gross assets, of which $25 million is financed by taxable auction market preferred stock.

BIF's holdings are fairly spread out, but it would never be considered as constituting a diversified portfolio. The assets are fairly interesting with its largest sector investments being:

Foreign stocks: 15.0%
Short term investments: 11.0%
Closed-end funds: 6.5%
Electric Utilities: 5.0%
Closed-end auction preferreds: 3.6%
Hedge funds: 3.1%

Considering the asset classes it invests in, you can have no doubt why it sells at a substantial discount. The management has invested in this. Again, I would not invest my last dollar, but I would take a shot.

The Denali Fund

DNY trades on the NYSE and is 76.76% controlled by the Horejsi family. It is a leveraged fund with, as of November 30, $117 million in gross assets, of which $40 million is financed by auction preferred shares.

Again, we are confronted with an extremely different but interesting portfolio, consisting primarily of the following:

Short term investments: 28.4 %
REITs: 13.0%
Closed-end Funds: 10.5%
Closed-end fund preferreds: 10.0%
Hedge Fund: 7.9%

I do not know what management intends to do with this fund, although it does control 76.76% of the outstanding shares. It would appear that it's waiting to invest its remaining cash but has not yet done so. I sort of like the balance of income paying securities offsetting riskier investments and more than generating enough funds to pay the preferred dividends. Obviously there may be some form of corporate restructuring in the near future. As always, the deep discount from net assets offers an additional enticement.


These four funds are enigmas, but are certainly different from other closed-end funds and possibly unique. Management has its own money at stake and most certainly has developed a strategy. I would buy a little of each to see what develops. Some of these funds appear to offer much higher risks than others, but then everything still appears fluid and could rapidly change. The portfolios are strange but not foolish. On many levels they do make sense.

Disclosure: I am long BTF, BIF, DNY, FF.