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EAD And EOD: Wells Fargo Sells Asset Management Business - The Opportunities?


  • Here we go again! Wells Fargo recently announced the sale of its asset management business to GTCR and Reverence Capital.
  • This is going to cause a new investment advisory agreement that would need to be voted on.
  • We recently saw several other fund companies that are going through mergers or acquisitions provide us with some nice alpha opportunities.
  • The best plays for this type of speculative trade are from EAD and EOD. Both funds are trading at larger discounts.
  • I do much more than just articles at Yield Hunting: Alt Inc Opps: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

(This report was issued to members of Yield Hunting on Feb. 27.)

On Feb. 23, Wells Fargo (WFC) announced the sale of their asset management business to GTCR LLC and Reverence Capital Partners. Wells will remain the distribution partner and retain some client functions. They also will maintain a 9.9% equity stake into the new business.

This is very similar to other recent business sales as the industry continues to consolidate. We recently went through similar corporate actions most recently with Legg Mason/Western Assets' acquisition by Franklin Templeton. That one was a home run.

Here we will analyze the current setup and how we think best to play it. We like Wells Fargo Income Opportunities (NYSE:EAD) with its exposure to high yield bonds, moderate leverage, and stellar long-term track record.

What's Happening?

In the press release, they note:

Consummation of the transaction will result in the automatic termination of each fund’s investment advisory agreement and sub-advisory agreement(s). The funds’ Boards of Trustees (the Boards) will be asked to approve new investment advisory arrangements with the new company. If approved by the Boards, and to the extent required by applicable law, the new investment advisory arrangements with the new company will be presented to the shareholders of each fund for approval, and, if approved by shareholders, would take effect upon the closing of the transaction. The transaction is expected to close in the second half of 2021, subject to customary closing conditions.

Essentially, the board will vote to approve the new investment advisory agreement with GTCR/Reverence to manage the fund. They then will put the vote to the shareholders who will receive mail after mail and call after call pressing them to vote.

This is done on purpose. For one, the vote cannot be approved without a quorum, i.e. a certain percentage of share votes. Second, the

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This article was written by

Alpha Gen Capital profile picture
Yield Hunting: Alternative Income Opportunities is a premium service dedicated to income investors who are searching for yield without the high risk of the equity market. We are one of the top experts in closed-end funds ("CEFs") in the country having spoken at many national conferences on how to incorporate CEFs into client portfolios. We manage four portfolios that investors can follow:

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2) George Spritzer - Another career financial guru who runs a registered investment advisor with a specialization in closed-end funds for individuals. George uses the following investment strategies:1) Opportunistic Closed-end fund investing: Buy CEFs at larger than normal discounts to NAV and sell them when the discounts narrow. 2) Exploit special situations: tender offers, fund terminations, fund activism, rights offerings etc.

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Analyst’s Disclosure: I am/we are long EAD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (30)

bot ead near 10% discount..the ead/hyg leveraged pair testing 3yr uptrend
7/15 added to ead near 9.5% discount ...
David Johnston profile picture
At least EAD (and for me, ERC) have been on a nice uptrend all year.
We'll need a new article, "Wells Asset Under New Management: What the Future Holds"
@Alpha Gen Capital Is there an update since the August meeting? I {Google that is} can't find anything about the meeting/vote.
Alpha Gen Capital profile picture
@usera2020 Nothing yet but my sources tell me that the votes were there and the agreement approved.
Thank you! I usually do not vote because I do not own enough shares to make it worth my time to do some research. I have been getting phone calls and mail to encourage me to vote so I was wondering what was going on. Your article explained everything I needed to know to make it an informed vote. I also enjoyed the comments.
2whiteroses profile picture
Just received the proxyvote.com voting requests for EAD and EOD.... So the plan is to ignore voting???
David Johnston profile picture
@2whiteroses or vote no.
I also own ERC but it’s near NAV.
I voted No just to see what happens and to stop the constant phone calls.
Retired Investor profile picture
@2whiteroses I agree with David-Vote No. If you don’t vote, the funds will spend $$ (assuming the firm doesn’t cover) trying to get you to vote. If the fund pays, that means you paid.
I am a little late to this party...

Does this mean that EAD will soon cease to exist, or will it continue into the future?

Should I be seeking a different fund to replace EAD with?
David Johnston profile picture
@Nikko9009 That's what the author is advicating for. If we all vote no, or don't vote at all, then the fund would liquidate at NAV and you would capture (today 3-25) the ~0.70 /share premium. If you're happy with EAD and the new management agreement is acceptable, then EAD will continue.
@David Johnston Well, I guess it is a win-win. It would be sad to see it go, but there are many other good funds to comb through.
Alpha Gen Capital profile picture
@Nikko9009 @@David Johnston Couldn't state it any better than how David did..... That's the goal in these special situations. But you have to like the underlying fund and management while you wait. And in the case of EAD, I do.
also to add fuel to fire EFF just today announced liquidation of fund on back of eaton vance being acquired by Morgan Stanley and subsequent termination of advisory agreement...saba capital has been an activist investor in EFF and EFR
good article.. ead/hyg leveraged weighted pair has seen ead be a significant outperformer since march lows...currently trading near multiyear highs so all else being equal would not be buyer..having said that all else is not equal as author points out..
Life On Mars profile picture
I might consider EAD/EOD if they paid monthly (like my bills are paid) but I won't touch anything that pays quarterly.
Stranger in Town profile picture
@LifeOnMars EAD is paid monthly, EOD is paid quarterly.
ButscherDoug profile picture
@LifeOnMars You won't touch anything that pays quarterly? Isn't that like walking past a $1 on the ground because it's not $5.
Life On Mars profile picture
@ButscherDoug Not really.. I already get 10% monthly from my Pimco funds and they are very healthy.
Good article. All my lots of EOD are positive so anticipating ex day on thursday, I doubled down today to collect a double divi and then im gonna sell 75% and take my share cost well below NAV plus some appreciation. Your article is very well timed!
rickevantodd profile picture
Very good article. Didn’t realized Wells managed in excess of $600 B!
Retired Investor profile picture
Like playing options on merger arbitrage, interesting idea. Any idea where the vote was Yes and discount wasn’t captured?
Seatonmanagement profile picture
Still glad I've stayed away from Wells Fargo's products.
jimklawyer profile picture
@Seatonmanagement so which CEFs do you like best for what sectors?
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