GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
There are other things management could do that would hurt shareholders.
One possibility is a rights offering at depressed pricing that presents an unattractive choice to investors - participate (but effectively throw good money after bad, while increasing fees to the managers), or don't participate and suffer dilution. Not sure how likely/plausible this might (or might not) be...
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
Am I correct to guess that the benchmark/hurdle rate for such incentive fees is not tied to the market?
If that's the case, then imagine a scenario where the market has a nice bull run and increases 50% in the next 3 years. Assume GSVC matches that return, pre-fees. Would investors be paying significant incentive fees for this (pre-fee) market-matching performance?
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
Here's a little thought exercise:
Let's assume that GSVC converted, tomorrow, into an ETF. (Putting aside the question of whether such a conversion would be legal. And yes, I know the ETF format would almost certainly not be compatible with the illiquid/private nature of some of the holdings, but this is a thought exercise, so play along).
Let's assume that as an ETF, the market price tracked NAV within a percent or so, as best as any well informed market maker could determine it. (i.e. They'd have access to quotes from these private markets, full and current knowledge of the fund's balance sheet (i.e. cash, shares outstanding, etc.)
Let's furthermore make the heroic assumption (again, thought exercise), that this ETF credibly committed to a management fee of only 0.10%. Effectively, you could buy this ETF at management cost very close to what one pays for conventional, broad market ETFs. Moreover, any additional exotic costs (legal, commissions, etc.) would be capped to no higher than for a comparable broad market ETF.
===
Furthermore, you could buy this fund in 2 flavors: 1) Basically passive. It buys all the latest hot private tech companies of the sort that the real GSVC buys, but based on some sort of specialized index or whatever.
2) Active. i.e. Capturing any additional alpha (positive or negative) added by THIS management's skill (or lack thereof).
OK, so that's a long setup. But the payoff is, WOULD YOU INVEST (in either)?
You're not going to benefit in any substantial way from discount reduction. You're not going to be penalized in any substantial way by high fees.
i.e. Is the market class attractive? (if so, you'd presumably be interested in at least the passive option)
Will the management add alpha, on a gross basis? (If so, you'd sign up for current management.)
Obviously, this is extremely hypothetical, but from these basic thoughts, perhaps one can back into the question of what level of fees (not only management fees, but any extra fees, if they aren't bundled into the management fee, for higher costs in running this kind of fund) is appropriate, what alpha (+ or -) we might expect from current management.
And, from THERE, we can start to get at the question of how attractive this might be at a given level of discount (putting aside, for a moment, the question of what the current discount actually IS, if investments are fairly and accurately valued.)
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
1) Assuming the at cost valuation closely approximated a fair value that management assigned at the end of March, and assuming that most of the investments are in social media type internet companies, is there an index of publicly traded social media companies that can be used to guesstimate the general trend of these types of investments in the last several months?
i.e. We know FB launched poorly, and IIRC, that caused a downdraft in valuations of similar companies. But rather than the anecdotal, perhaps there is an index or an ETF that can be used to estimate these things more systematically?
2) I'm still skeptical of a significant buyback in the near future.
a) They just ISSUED shares, at a relatively high valuation. To now buy some back at a lower valuation might cause a loss of face.
b) I assume management compensation is strongly tied to the size of the fund. Even if they hold some shares in the fund as well, I would guess that the size of that holding would likely have to be pretty high in order for a buyback to increase the value of their holdings more than it decreases the value of their management income.
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
While a purportedly deep discount is interesting, I would be wary of some things, including (but not limited to):
1) In your NAV estimate you've valued the invested capital at cost, and included a few examples to suggest that may be conservative. I would think a more thorough review of the portfolio, focusing on the largest investments, would be helpful. I realize that's a lot of work and wouldn't necessarily be precise, but if a key part of the investment thesis is that one can buy shares on the open market for far less than the value of the underlying assets, I'd like to see that latter value nailed down a bit more.
2) The likelihood that the management, voluntarily or through shareholder pressure, will be induced to liquidate this in the short term (next year or two) seems low to me. Therefore, the investor is relying on management being both: a) Skilled as to investments b) Fair dealing as to their shareholders (i.e. not extracting excessive compensation).
If management were to underperform the broader market for several years, and/or to charge what amounted to a hefty management fee for the assets they're investing, then even a substantial discount now might not render this an attractive investment.
I'm curious as to evidence of skill on the management's part, and particularly as to the compensation system in place for management, and the scale of management compensation and general overhead costs in relation to the size of the fund.
I realize that, as with point 1 above, I could research this myself. Perhaps I will do so. But if the author has researched this on his/her own and can respond on these points, that might be helpful.
Monthly Income Ideas:4 Closed-End Funds With 12% To 18% Yields (Part 1) [View article]
****HEY SEEKING ALPHA EDITORS****
I would imagine you like to boost the quantity of content on your site - it makes your site look nice and big.
But do you really have to let articles like this through? Really?
Maybe I should use Google to create a list of 'Top 10 search results for the term "Cheap Stocks"'...
===
To add a small amount of content to my post (more than this article seems to have). The Cornerstone funds mentioned here are abominable, and their problems have been documented by other articles here on SA (articles with actual content and research - not the gussied up result list of a brainless screen).
===
Come on editors. I like this site. But you can and should do better than to allow the likes of this.
For those here who actually own the physical real estate, 3 questions:
How many units do you own? How much time, all in, do you personally spend per month or year dealing with your properties in all ways? Do you use a management company?
Real questions - I'd be curious to see some responses. I was into this stuff in a relatively modest way many years ago and kick around the idea of getting back into it...
Denali: A Closed-End Fund In Transition [View article]
Or, as an alternative, perhaps you have a clear and strong argument that the manager(s) of this fund are likely to exhibit superior skill. If so, present some evidence to that effect.
Perhaps you like the basket of assets it has, whether that basket is best described as "mundane" or "interesting". But it seems rather a mish-mash to me, and since you say you "know nothing" of one rather exotic slice of the CEF (the hedge fund), I don't think you've really presented much of a case here.
Hey - I like to read stories about CEFs. I like stories that spotlight the obscure. I'd just ask for a little deeper analysis and/or some more clear cut reasoning behind a quasi-recommendation (or is it that?) than is exhibited here.
Denali: A Closed-End Fund In Transition [View article]
The difference between:
1) Investment XYZ is a good investment
and
2) Investment XYZ is a good investment, within a broader portfolio
is not THAT great. I think it can be reasonably assumed that most CEF investments (and indeed, most investments in general) should be considered within the context of an assumed broader portfolio.
Sometimes, a particular investment has characteristics that make it particularly appealing within a typical portfolio (i.e. minimal correlation with the market or even negative correlation), even if it isn't that attractive on a stand-alone basis.
But you haven't, so far as I can tell, presented any reason why DNY would be unusually good within a portfolio.
So, is DNY a good investment, in general?
i.e. Does it offer a compelling risk/reward premise, or a high expected return/expected value if you prefer?
How will the large discount translate into large relative returns for investors? Detail the costs associated with DNY as opposed to both highly similar investments (other CEFs), and baseline investments (broad index ETFs and OEFs and such).
Denali: A Closed-End Fund In Transition [View article]
Quick follow-up clarification to my prior comment:
There may be a wide variety of reasons why an investor may want to purchase a CEF.
But IF a discount is the driving force for the investment, THEN the investor should carefully consider how that discount will translate to something good for him/herself. That should then be compared to other factors involved with the investment.
Denali: A Closed-End Fund In Transition [View article]
Robert:
A CEF manager's interests are not perfectly aligned with the ordinary shareholders, even if the CEF manager has a large block of the shares.
High management fees would hurt the shareholders, but help the manager. Even though the fees would degrade the performance of the manager's holdings, since the fees would end up in the manager's pockets anyways, there is no real cost there. And the manger DOES get the benefit of management fees collected from ordinary shareholders.
===
Also, a high discount is not in and of itself sufficient cause for an investor to invest in a CEF. There must be the prospect of gain from that discount, sufficient to outweigh the marginal costs, fees, and so on associated with the investment. There are a number of ways to gain from a discount, including but not limited to discount narrowing. In general, I think your analysis would benefit from a more detailed analysis of the possibilities and prospects of some of these methods, as well as a closer look at the costs of holding the investment.
===
Finally, I'm not sure that I would characterize the investment holdings you have described as "mundane", and in any case, if one were to describe them as "mundane", that would seem to be in conflict with the description of them as "interesting".
The Hazards Of One-Size-Fits-All Performance Attribution [View article]
One very big problem I noted with the DAL study when first reading of it (perhaps the authors' own report - I don't recall exactly) is a massive survivorship issue.
If you are only looking at funds that survived over a >20 year period, you are presumably looking at a subset of all the funds that were in existence at the beginning of that period, and very likely a subset weighted towards those that did well. i.e. The poor performers from the beginning of the period likely had a disproportionate chance of not being around at the end of that period, and thus the results are deeply skewed.
This analytical problem, in and of itself, is both so major over a long timeframe study such as the DAL one, and so basic (i.e. this issue should be well understood by those trying to make studies such as this), that it essentially discredits the whole study, to me at least.
But yeah, funds should also be benchmarked appropriately.
A Closed-End Fund To Hold Gold Stocks At A Discount [View article]
ASA only updates NAV weekly (generally/always on Fridays, it seems).
If you compute the discount using, say, the Wednesday close in comparison to the previous Friday's NAV, you're likely to get a NAV that's not very useful.
Look at http://www.asaltd.com for a recent discount on a day when the NAV was actually updated.
Disclosure: Long ASA, but reasonably likely to pare down or sell my position soon.
Note that ASA seems to come with some unusual tax issues, that are discussed on the http://www.asaltd.com site. Those tax issues are much of the reason I'm likely to reduce/eliminate my ASA holdings.
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
One possibility is a rights offering at depressed pricing that presents an unattractive choice to investors - participate (but effectively throw good money after bad, while increasing fees to the managers), or don't participate and suffer dilution. Not sure how likely/plausible this might (or might not) be...
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
If that's the case, then imagine a scenario where the market has a nice bull run and increases 50% in the next 3 years. Assume GSVC matches that return, pre-fees. Would investors be paying significant incentive fees for this (pre-fee) market-matching performance?
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
Per Brad Ginesin's article...
http://seekingalpha.co...
...there are incentive fees in addition to the management fee.
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
Let's assume that GSVC converted, tomorrow, into an ETF. (Putting aside the question of whether such a conversion would be legal. And yes, I know the ETF format would almost certainly not be compatible with the illiquid/private nature of some of the holdings, but this is a thought exercise, so play along).
Let's assume that as an ETF, the market price tracked NAV within a percent or so, as best as any well informed market maker could determine it. (i.e. They'd have access to quotes from these private markets, full and current knowledge of the fund's balance sheet (i.e. cash, shares outstanding, etc.)
Let's furthermore make the heroic assumption (again, thought exercise), that this ETF credibly committed to a management fee of only 0.10%. Effectively, you could buy this ETF at management cost very close to what one pays for conventional, broad market ETFs. Moreover, any additional exotic costs (legal, commissions, etc.) would be capped to no higher than for a comparable broad market ETF.
===
Furthermore, you could buy this fund in 2 flavors:
1) Basically passive. It buys all the latest hot private tech companies of the sort that the real GSVC buys, but based on some sort of specialized index or whatever.
2) Active. i.e. Capturing any additional alpha (positive or negative) added by THIS management's skill (or lack thereof).
OK, so that's a long setup. But the payoff is, WOULD YOU INVEST (in either)?
You're not going to benefit in any substantial way from discount reduction. You're not going to be penalized in any substantial way by high fees.
i.e. Is the market class attractive? (if so, you'd presumably be interested in at least the passive option)
Will the management add alpha, on a gross basis? (If so, you'd sign up for current management.)
Obviously, this is extremely hypothetical, but from these basic thoughts, perhaps one can back into the question of what level of fees (not only management fees, but any extra fees, if they aren't bundled into the management fee, for higher costs in running this kind of fund) is appropriate, what alpha (+ or -) we might expect from current management.
And, from THERE, we can start to get at the question of how attractive this might be at a given level of discount (putting aside, for a moment, the question of what the current discount actually IS, if investments are fairly and accurately valued.)
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
i.e. We know FB launched poorly, and IIRC, that caused a downdraft in valuations of similar companies. But rather than the anecdotal, perhaps there is an index or an ETF that can be used to estimate these things more systematically?
2) I'm still skeptical of a significant buyback in the near future.
a) They just ISSUED shares, at a relatively high valuation. To now buy some back at a lower valuation might cause a loss of face.
b) I assume management compensation is strongly tied to the size of the fund. Even if they hold some shares in the fund as well, I would guess that the size of that holding would likely have to be pretty high in order for a buyback to increase the value of their holdings more than it decreases the value of their management income.
GSV Capital: Deep Value With Numerous Potential Catalysts [View article]
1) In your NAV estimate you've valued the invested capital at cost, and included a few examples to suggest that may be conservative. I would think a more thorough review of the portfolio, focusing on the largest investments, would be helpful. I realize that's a lot of work and wouldn't necessarily be precise, but if a key part of the investment thesis is that one can buy shares on the open market for far less than the value of the underlying assets, I'd like to see that latter value nailed down a bit more.
2) The likelihood that the management, voluntarily or through shareholder pressure, will be induced to liquidate this in the short term (next year or two) seems low to me. Therefore, the investor is relying on management being both:
a) Skilled as to investments
b) Fair dealing as to their shareholders (i.e. not extracting excessive compensation).
If management were to underperform the broader market for several years, and/or to charge what amounted to a hefty management fee for the assets they're investing, then even a substantial discount now might not render this an attractive investment.
I'm curious as to evidence of skill on the management's part, and particularly as to the compensation system in place for management, and the scale of management compensation and general overhead costs in relation to the size of the fund.
I realize that, as with point 1 above, I could research this myself. Perhaps I will do so. But if the author has researched this on his/her own and can respond on these points, that might be helpful.
Monthly Income Ideas:4 Closed-End Funds With 12% To 18% Yields (Part 1) [View article]
I would imagine you like to boost the quantity of content on your site - it makes your site look nice and big.
But do you really have to let articles like this through? Really?
Maybe I should use Google to create a list of 'Top 10 search results for the term "Cheap Stocks"'...
===
To add a small amount of content to my post (more than this article seems to have). The Cornerstone funds mentioned here are abominable, and their problems have been documented by other articles here on SA (articles with actual content and research - not the gussied up result list of a brainless screen).
===
Come on editors. I like this site. But you can and should do better than to allow the likes of this.
Real Estate Vs. REITs [View article]
How many units do you own?
How much time, all in, do you personally spend per month or year dealing with your properties in all ways?
Do you use a management company?
Real questions - I'd be curious to see some responses. I was into this stuff in a relatively modest way many years ago and kick around the idea of getting back into it...
Denali: A Closed-End Fund In Transition [View article]
Perhaps you like the basket of assets it has, whether that basket is best described as "mundane" or "interesting". But it seems rather a mish-mash to me, and since you say you "know nothing" of one rather exotic slice of the CEF (the hedge fund), I don't think you've really presented much of a case here.
Hey - I like to read stories about CEFs. I like stories that spotlight the obscure. I'd just ask for a little deeper analysis and/or some more clear cut reasoning behind a quasi-recommendation (or is it that?) than is exhibited here.
Denali: A Closed-End Fund In Transition [View article]
1) Investment XYZ is a good investment
and
2) Investment XYZ is a good investment, within a broader portfolio
is not THAT great. I think it can be reasonably assumed that most CEF investments (and indeed, most investments in general) should be considered within the context of an assumed broader portfolio.
Sometimes, a particular investment has characteristics that make it particularly appealing within a typical portfolio (i.e. minimal correlation with the market or even negative correlation), even if it isn't that attractive on a stand-alone basis.
But you haven't, so far as I can tell, presented any reason why DNY would be unusually good within a portfolio.
So, is DNY a good investment, in general?
i.e. Does it offer a compelling risk/reward premise, or a high expected return/expected value if you prefer?
How will the large discount translate into large relative returns for investors? Detail the costs associated with DNY as opposed to both highly similar investments (other CEFs), and baseline investments (broad index ETFs and OEFs and such).
Denali: A Closed-End Fund In Transition [View article]
There may be a wide variety of reasons why an investor may want to purchase a CEF.
But IF a discount is the driving force for the investment, THEN the investor should carefully consider how that discount will translate to something good for him/herself. That should then be compared to other factors involved with the investment.
Denali: A Closed-End Fund In Transition [View article]
A CEF manager's interests are not perfectly aligned with the ordinary shareholders, even if the CEF manager has a large block of the shares.
High management fees would hurt the shareholders, but help the manager. Even though the fees would degrade the performance of the manager's holdings, since the fees would end up in the manager's pockets anyways, there is no real cost there. And the manger DOES get the benefit of management fees collected from ordinary shareholders.
===
Also, a high discount is not in and of itself sufficient cause for an investor to invest in a CEF. There must be the prospect of gain from that discount, sufficient to outweigh the marginal costs, fees, and so on associated with the investment. There are a number of ways to gain from a discount, including but not limited to discount narrowing. In general, I think your analysis would benefit from a more detailed analysis of the possibilities and prospects of some of these methods, as well as a closer look at the costs of holding the investment.
===
Finally, I'm not sure that I would characterize the investment holdings you have described as "mundane", and in any case, if one were to describe them as "mundane", that would seem to be in conflict with the description of them as "interesting".
The Hazards Of One-Size-Fits-All Performance Attribution [View article]
If you are only looking at funds that survived over a >20 year period, you are presumably looking at a subset of all the funds that were in existence at the beginning of that period, and very likely a subset weighted towards those that did well. i.e. The poor performers from the beginning of the period likely had a disproportionate chance of not being around at the end of that period, and thus the results are deeply skewed.
This analytical problem, in and of itself, is both so major over a long timeframe study such as the DAL one, and so basic (i.e. this issue should be well understood by those trying to make studies such as this), that it essentially discredits the whole study, to me at least.
But yeah, funds should also be benchmarked appropriately.
A Closed-End Fund To Hold Gold Stocks At A Discount [View article]
A Closed-End Fund To Hold Gold Stocks At A Discount [View article]
If you compute the discount using, say, the Wednesday close in comparison to the previous Friday's NAV, you're likely to get a NAV that's not very useful.
Look at http://www.asaltd.com for a recent discount on a day when the NAV was actually updated.
Disclosure: Long ASA, but reasonably likely to pare down or sell my position soon.
Note that ASA seems to come with some unusual tax issues, that are discussed on the http://www.asaltd.com site. Those tax issues are much of the reason I'm likely to reduce/eliminate my ASA holdings.