Most major money managers or hedge fund traders who make millions a year have complex compensation package involving a base salary, stock options and one or more bonus programs, including a retirement plan. Not billionaire Mario Gabelli, the 73-year-old founder of Gamco Investors. Gabelli receives no salary and no bonuses, but he does take 10% off the top of pretax profits at Gamco. That added up to $88.5 million for Gabelli last year, the most of any CEO of a publicly traded company on Wall Street, so he must be doing something right.
Gabelli laid out his “traditional” stance on investing as far back as 1988 when he wrote the Magna Carta of Shareholder Rights stating his opposition to greenmail, poison pills and supermajority voting.
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Mario Gabelli is a "traditional" investor
Mario Gabelli says he is a traditional value investor. Moreover, his strategy of buying undervalued stocks and holding them for the long term has generated solid profits. Of note, a client who invested $10 million with Gamco in 1978 would have close to $2.2 billion as of March 31(ex fees) according to a Gamco model based on a composite of institutional accounts. Keep in mind that the same $10 million investment in the S&P 500 would have only grown to $645 million.
Traditional stock pickers like Mario Gabelli are not in vogue today. The sector has seen several years of continued outflows. The percentage of assets in actively managed U.S. stock funds has sunk from about 81% of total U.S. equity assets in January 1, 2009 to 71% at the end of July of this year, according to Morningstar. The fund research firm also notes that investors withdrew a record $107.2 billion from actively managed U.S. stock funds in the first seven months of 2015..
The trend away from active management has led to the dominance of firms such as Vanguard Group that use passively managed funds that follow market indexes, and dimming the star of others such as Fidelity Investments who have made their name from their stable of star stock pickers.
Morningstar data shows that the 19 mutual funds Gamco operates, which were last reported at $15.6 billion in total assets, have seen net outflows of about $2 billion through July of this year. Despite the big drop in AUM so far this year, Gamco has seen inflows in several recent years.
The price of the firm's shares is also down from a one-year high of just over $90 on Dec. 29, 2014, to $63.50 after the close Tuesday.
Gabelli is paid via "incentive-based management fee"
Based on recent regulatory filings, Mario Gabelli's only compensation is a 10% of pre-tax profits incentive-based management fee. He is not paid a base salary and does not receive stock options or restricted awards. Gamco board members who spoke to the WSJ noted that Gabelli's pay is regularly reviews like all other employees, but the board has no plans to make changes to the current arrangement.