Monday, January 11, 2010

Closed end funds

The multidisciplinary blog has linked to an article discussing the attraction of some activist investors to closed end funds.

We discussed the general issues here before, as for example here or here.

The instant paper, by Douglas Ott, suggests that activist investors "can be a desirable element for all investors in the targeted closed-end funds as they may be able elect directors that are more independent and are often able to decrease the discount to NAV just with an announcement of a proxy contest." That's from the abstract./ But let's delve into the depths.

One of Ott's points concerns the "unitary board." A single management group can run several funds, with different investors and portfolios, and can have a single board of directors for all or most of these funds. If I understand him, Ott believes that this is an inherently conflicted arrangement and to this he attributes much of the discount of fund share prices to net asset value (NAV), both because the attentiuon of the directors is divided among the funds and because the directors are too beholden to the management.

The whole paper is here.

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