Goldman's first closed-end fund IPO raises $826 million and hopes for sector

Offering raises most money since June; benefited from focus on MLPs

Nov 26, 2013 @ 11:52 am

By Jason Kephart

closed end fund, IPO, master limited partnership, initial public offering
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Goldman Sachs Asset Management's first foray into closed-end funds may have done more than raise a lot of money. It might have reignited the whole space.

The Goldman Sachs MLP Income Opportunities Fund (GMZ) raised $826 million this week, making it the largest initial public offering of a closed-end fund since June.

The Goldman Sachs MLP Income Opportunities Fund (GMZ) raised $826 million this week, making it the largest initial public offering of a closed-end fund since June.

“It's really been a tough IPO market,” said Cecilia Gondor, chief investment officer of Thomas J. Herzfeld Advisors Inc., a registered investment adviser that specializes in closed-end fund research. “We've been seeing a lot of $100 million to $300 million deals. This is fantastic.”

Don't Miss: Why investors should be open to closed-end funds

Recent closed-end fund IPOs. <i>Source: Thomas J. Herzfeld Advisors, Inc.</i>
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Recent closed-end fund IPOs. Source: Thomas J. Herzfeld Advisors, Inc.

The Center Coast MLP & Infrastructure Fund (CEN) raised just $290 million in September, for example, and private equity giant KKR & Co. LP was barely able to crack $300 million in June with its KKR Income Opportunities Fund (KIO).

The Goldman fund benefited from the combination of brand appeal and the focus on master limited partnerships, which have been a hot asset class in the closed-end fund world over the past few years, thanks to their income, Ms. Gondor said.

“MLPs are an area closed-end investors like,” she said. “They pay out attractive distributions.”

Closed-end funds that invest in MLPs also have done a fairly good job of keeping their discounts narrow or at premiums, Ms. Gondor said.

Closed-end funds have a fixed number of shares, so they typically trade above or below the fund's net asset value, depending on investor sentiment. When more investors are buying than selling, for example, the fund's shares will trade at a premium.

Shares of the Clearbridge American Energy MLP Fund (CPA), which raised just over $1 billion in June, have traded at an average premium of 2.13% since its launch, according to Morningstar Inc. It also has a 6.68% distribution rate.

MLPs have benefited this year from investors looking for income and a way to play the energy renaissance that is under way in the United States.

The latter is what Kyri Loupis, lead portfolio manager of the Goldman Sachs MLP Income Opportunities Fund, thinks will drive the asset class.

“MLPs are a direct play on the theme of commodity production growth without the volatility of direct exposure to commodity prices,” he said.

Mr. Loupis expects production of the three major U.S commodities — natural gas, natural gas liquids and crude oil — to reach record levels next year through 2016.

“We think it's a multiyear theme,” he said. 

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