Investors who have had access to Mario Gabelli's stock-picking expertise for years through Gamco Investors Inc., the Gabelli family's asset management company, now have access to the family's fixed-income expertise.
Investors who have had access to Mario Gabelli's stock-picking expertise for years through Gamco Investors Inc., the Gabelli family's asset management company, now have access to the family's fixed-income expertise.
The Gabellis' Commonwealth Asset Management LLC, headed by son Marc, has decided to make its cash- management expertise available to wealthy investors.
Commonwealth, which manages about $20 million in assets — about half from the Gabelli clan and the remainder from a single institutional client — invests in short-term, fixed-income instruments. The firm strives for greater returns, with less risk, than those available from typical sweep accounts.
Managing the process is Commonwealth president Henley Smith, formerly chief investment officer of Gabelli Fixed Income, a wealth management division of Gamco.
Commonwealth, which filed as a registered investment adviser with the Securities and Exchange Commission last fall, is targeting clients made anxious about access to cash after the financial crisis of 2008, when The Reserve Management Co. Inc.'s Primary Reserve money market fund “broke the buck.”
Mr. Smith said that he hopes to increase assets to about $1 billion in five years, noting that Commonwealth is finding clients through word-of-mouth referrals and TD Ameritrade Holding Inc.'s "s brokerage referral platform.
“We saw what happened about two years ago, when people saw that money market mutual funds didn't do what they were supposed to do,” he said.
“Marc and I decided we're not going to give up those assets. We're going to control the cash, and from the client's point of view, we're giving them a secure, transparent foundation on which to build investment programs,” Mr. Smith said.
SHORT-TERM NOTES
The minimum investment for Commonwealth is about $1 million, he said. Fees are determined on a scale by percentage of assets.
Mr. Smith and Mr. Gabelli think Commonwealth now should focus on short-term notes, given the uncertainty about the pace of economic recovery and the outlook for inflation and interest rates.
“We just went through a decade where the S&P [500] was basically flat,” Mr. Gabelli said.
“But within that context, one could have earned fairly attractive returns, risk-adjusted, through a mix of short-term fixed-income instruments, both governments' and others.' We think that with the monetary policy we've experienced, having a mix of short-term instruments for ourselves and offering it to select clients, makes a lot of sense,” Mr. Gabelli said.
At the moment, though, the Gabellis and their clients have to be content with fairly middling results. For now, Mr. Smith is satisfied with getting just about five to 10 basis points over the three-month Treasury bill.
“Given where we've been and where we're going, we want to be conservative,” he said.
“I'm happy with what we've been able to do on the active side. Once we get to understand what the "new normal' is, I'll go into commercial paper, asset-backed securities and all types of other money market instruments, but right now, I'm looking for a total rate of return over and above what you would get in a typical money market fund,” Mr. Smith said.
He expects the Federal Reserve to raise interest rates this fall, and for market rates to go higher this summer in anticipation.
Looking for that extra jolt of yield has always been the “holy grail” for fixed-income investors, but given the continuing uncertainties in the markets, there seems to be somewhat more interest than action in strategies such as Mr. Smith's, said Peter Crane, president of Crane Data LLC.
“Everybody's talking about it. Some people are doing it, but more people are looking at it than doing it,” Mr. Crane said.
“It's a tough sell right now,” given the concern that any yield above zero indicates more risk, he said.
The evidence, Mr. Crane said, is that money market funds still command about $3 trillion in assets.
Mr. Gabelli said that in the past, his family investments were available only to “select high-net-worth” individuals through his family office, Commonwealth Management Partners LLLP, the parent company of Commonwealth Asset Management.
Commonwealth Management Partners offers those clients alternative investments, management advisory services, primarily in the accounting arena, and direct investments in industrial companies and real estate, he said. Investors in Commonwealth Asset Management may have access to these investments as well, Mr. Gabelli said.
Mr. Gabelli learned about investing from his father, Mario, who started his investment firm in 1976. As he grew up, the younger Mr. Gabelli took on more responsibility at the firm, becoming ensconced in the labyrinth of the public and private firms his father controls, and also managing some funds, including the Gabelli Global Growth Fund, which he headed from 1997 to 2004.
It was during this period that Marc Gabelli ran afoul of the SEC. In 2008, the regulatory agency charged him with market timing in the Gabelli Global Growth Fund, claiming that he allowed one London hedge fund to move in and out of stocks too quickly.
Mr. Gabelli has denied the allegations, and last month, a federal judge dismissed some of the charges, noting in part that the SEC had waited too long to make its claims.
SKIN IN THE GAME
For investors drawn by the Gabelli name and expertise, one advantage that Marc Gabelli has as he offers more-specialized investments to outsiders, is that he and his family have their own money at play, said Maria Elena Lagomasino, chief executive of GenSpring Family Offices.
Her firm, which has $18 billion under advisement, often looks for external managers such as Mr. Gabelli who are investing along with clients. Those investors are like the pigs that produce the ham at breakfast, rather than the chickens that provide the eggs, Ms. Lagomasino said.
“We always say, "The chicken is involved, but the pig is committed,'” she said.
E-mail Hilary Johnson at hjohnson@investmentnews.com.
