MVC Capital (MVC) is a publicly traded business development company that makes private equity and debt investments. It may be viewed as a closed-end fund, but only reports the net asset value every three months.
MVC provides long term equity and debt investment capital to fund growth, acquisitions and re-capitalizations of small and middle market companies in a variety of industries mostly located in the US. MVC may serve as lead investor for some transactions, as well as a co-investor along with other private equity sponsors.
Here are the three main reasons I like MVC as a long term investment:
1) It trades at an attractive discount to net asset value
2) Insider buying: there has been consistent insider buying by management and the board of directors.
3) Good sponsorship: Institutional investors own about 55% of MVC stock and many of the owners are institutions that I respect.
Insider Buying
There have been 13 insider buys of MVC over the last year and 10 insider buys over the last three months. Here are the most recent insider buys in June:
Insider | Title | Date | # Shares | Price | |
Gerald Hellerman | Director | 6/13/2012 | BUY | 1,000 | 12.53 |
Michael Tokarz | Chairman | 6/14/2012 | BUY | 10,000 | 12.61 |
Michael Tokarz | Chairman | 6/15/2012 | BUY | 20,000 | 12.61 |
William E Taylor | Director | 6/19/2012 | BUY | 300 | 12.86 |
Good Sponsorship
Here are some large holders of MVC stock (as of 3/31/2012) that are well known as savvy CEF or value investors:
1) Wynnefield Capital (1.625 million shares): Institutional value investor established in 1992 by Nelson Obus and Joshua Landes who held senior research and institutional positions at Lazard Freres & Co. Wynnefield specializes in US small cap situations that have a company or industry specific catalyst. They seek out under-followed, unrecognized and undervalued companies with minimal balance sheet risk and potential for micro or macro change.
2) Western Investment LLC (1.58 million shares): CEF investment firm run by Art Lipson. Western Investment is known as an "ethical" activist investor, and they do not accept greenmail. Their activist activities to date have benefited all of the fund shareholders. There has been no activist activity by Western Investment LLC against MVC which most likely means that they respect the current MVC management team. But if the discount to NAV were to widen dramatically, Western Investments may suggest policies to management to reduce the discount for all shareholders.
3) CS McKee LP (1.29 million shares): Respected institutional money manager founded in 1931 with $13 billion assets under management. They run different portfolio strategies. MVC Capital is a top ten holding (4.17%) in their small cap value equity strategy.
4) Michael F. Price (166,000 shares): Highly respected billionaire value investor who stepped down from running the Mutual Series mutual funds about 15 years ago. His main focus today is on philanthropy and managing his own family money.
MVC Capital: Statistics
Total Assets: $471 million
Net Assets: $406 Million
Market Value: $297 Million
Leverage: 13%
NAV as of 4/30/2012= $16.99 per share
Expense Ratio= 3.37%
Discount= -22.7% (rough estimate, NAV from 4/30/2012)
Quarterly Distribution: $0.12
Annual Distribution Rate (market price) = 3.61%
Portfolio Overview (as of 4/30/2012)
Equity | 79% |
Debt | 21% |
Top 5 Portfolio Holdings
US Gas & Electric cvt pfd | 15.21% |
Summit Research Labs common | 11.99% |
Ohio Medical cvt pfd | 9.35% |
MVC Automotive common | 8.81% |
SP Industries Second Lien Loan | 5.24% |
MVC Capital can be used as an income investment in a taxable account or a total return investment in a retirement account. Since management can receive incentive fees, the fund expense ratio can be quite high in some years. But the large discount to net asset value helps to alleviate this expense.
MVC Capital management appears to be honest in their valuation of the fund's holdings. They often lower the estimated value of some holdings at their own expense (since the management fees are based partially on assets under management). They have also offered some voluntary expense reductions to shareholders.
Disclosure: I am long MVC.
