Excitement builds for DoubleLine fund's IPO

MAY 02, 2013
By  JKEPHART
DoubleLine Capital LP is expected to launch its second closed-end fund this month, and expectations are running high for its initial public offering. The DoubleLine Income Solutions Fund will be managed by star bond guru Jeffrey Gundlach, Luz Padilla and Bonnie Baha. Ms. Padilla and Ms. Baha manage emerging-markets debt and credit, respectively, at DoubleLine. Mr. Gundlach, of course, is best known for his mortgage-backed-securities expertise. The fund has the freedom to invest across all fixed-income categories and will use up to 33% leverage, according to a prospectus filed with the Securities and Exchange Commission. The fund's upcoming IPO follows the best first quarter for launches of closed-end funds in years. That's leading experts to believe the DoubleLine fund could make a big splash. “I expect it'll sell like a celebrity fund,” said Cecilia Gondor, chief investment officer of Thomas J. Herzfeld Advisors Inc. If it does, interested advisers would be wise to get in at the IPO rather than to wait around. Since closed-end funds have a fixed number of shares, they typically trade at a premium or a discount to the fund's net asset value. DoubleLine's first closed-end fund, for example, has traded at an average premium of 8% over the past six months, according to Morningstar Inc. The DoubleLine Opportunistic Credit Fund (DBL) was launched in January 2012 and raised $326 million. It will be an upset if the new fund doesn't top that, but it's got several factors going in its favor. For one, the closed-end-fund IPO is much stronger today than a year ago. Eight new closed-end funds were launched in the first quarter, raising a total of $6.6 billion; in the first quarter of 2012, only four closed-end funds were launched and they rose less than $1.5 billion total. The star of the first quarter was the Pimco Dynamic Credit Income Fund (PCI), which has a similar go-anywhere mandate to the upcoming DoubleLine Fund. It raised around $3 billion, the largest closed-end-fund IPO since 2007, according to Morningstar. One of the big drivers of the closed-end-fund market's first quarter is the continuing search for yield, said Cara Esser, a closed-end-fund analyst at Morningstar. Since closed-end funds can use leverage, they're able to offer much higher income streams than traditional mutual funds. The DoubleLine Opportunistic Credit Fund, for example, has a 7% distribution rate. DoubleLine also has much more underwriter support this time around. There are more than 20 underwriters for the new offering, including new additions Bank of America Merrill Lynch and Morgan Stanley Smith Barney LLC, up from nine underwriters for its first fund. The biggest factor in its favor, however, is the performance of its first closed-end fund, Ms. Esser said. The DoubleLine Opportunistic Credit Fund had a total return of just over 15% over the one-year period through April 12. DoubleLine's flagship Total Return Fund (DBLTX) had a total return of 7.5% over the same time period. “They've got the name and they've got the track record,” Ms. Esser said.

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