Advisers haven't had much reason to get excited about the closed-end fund offerings launched in the past year, but that could change tomorrow as star manager Jeffrey Gundlach makes his closed-end fund debut.
The DoubleLine Opportunistic Credit Fund Ticker:(DBL) is expected to have its initial public offering Thursday and will begin trading on the New York Stock Exchange starting Friday. The IPO is being underwritten by a group led by Wells Fargo Securities, UBS Investment Bank and Barclays Capital, according to a filing with the Securities and Exchange Commission.
The DoubleLine Opportunistic Credit Fund will be an unconstrained bond fund managed by a team led by Mr. Gundlach.
Expectations for the fund are running high. “This is a celebrity fund and those tend to do good IPOs,” said Cecilia Gondor, chief investment officer at Thomas J. Herzfeld Advisors Inc., a closed-end fund specialist firm.
DoubleLine Capital LP so far has lived up to the hype. The firm's first mutual fund, the DoubleLine Total Return Bond Fund Ticker:(DBLTX), has grown to more than $15 billion in assets since its launch in April 2010; the firm had the best asset-weighted performance of any mutual fund family with more than $10 billion in assets in 2011, according to Lipper Inc.
Ms. Gondor compared the fund to those at Pacific Investment Management Co. LLC's that have Bill Gross' name attached. The Pimco Income Strategy Fund (PFL) has a three-year average premium of almost 6%, which means investors who got in at the IPO now have gained an extra 6% return on top of the fund's performance. That premium is largely attributed to Mr. Gross' reputation.
Closed-end funds offer a fixed number of shares that trade intraday on an exchange. Therefore, the shares almost always are trading at a premium or discount to the fund's net asset value.
The launch comes on the heels of a dismal year for closed-end-fund IPOs. The most recent closed-end fund IPO, the
BlackRock Utility and Infrastructure Fund Ticker:(BUI) only managed to raise $310 million when it launched in November.
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The lack of interest has been tied to the struggles of new funds to maintain a share price close to NAV. Most new closed-end funds launched last year were trading at a discount to NAV within six months. “What's the point of buying at the NAV during the IPO if it's just going to be at a discount in six months?” asked John Cole Scott, executive vice president at Closed-End Fund Advisors.
“The consensus has been that you're an idiot for buying at the IPO,” said Robert Shaker, portfolio manager at Shaker Financial Services LLC, which invests exclusively in closed-end funds. Mr. Shaker said the DoubleLine Opportunistic Credit Fund could buck that trend, though. “When push comes to shove, there is something to be said for managers.”
A spokesman for DoubleLine declined to comment due to the quiet period surrounding the IPO.
