Rajeev Das, head trader at activist investing hedge fund Bulldog Investors, talks activist investing at NYU. Here are the interview highlights. Don’t forget – sign up for our free daily newsletter to stay in the activist investing know.
How did you decide upon the name, Bulldog investors? As we understand, many Special Purpose Acquisition Companies (SPACs) now incorporate a “bulldog” provision – preventing any investor from holding more than 10% of the shell company to exercise conversion rights. Seems like Bulldog investors was a pioneer in such transactions. Is this where the name is derived?
We had Bulldog investors first, before they inserted this provision. Bulldogs are pretty tenacious and stubborn, and in the activist segment, one has to be that way. So, after a lot of thought, we chose this name. I think it describes us pretty well – what we do and how we are, as far as the mindset goes. Regarding the SPAC provision – yes, this is because of us. In the first batch of SPACs, before the financial crisis, if a certain number of shareholders voted against the transaction and asked to redeem the money, the transaction would not go through. So, that’s why they put the provision in there. You cannot vote more than a certain number of shares against a transaction. It is typically 10%, but it can vary. Regarding current SPACs, you can actually vote for a deal and get your money and the transaction will go through.
Can you please briefly explain the focus of your funds? What is the investment strategy? How is it different than other activist funds?
We are value activists. We are looking to buy assets at a discount to their value, which can be either their NAV (Net Asset Value) for a closedend fund, or it can be a discount to their private market value. But what we really have to be sure about is that the “value” is there. So, we look for companies that we can really hang our hat on, as far as the value is concerned. We try to avoid turnaround situations. I think that’s where we differ from a lot of activists. I think we are also the only “real” activists in the closed-end fund space; there are few others that do share proposals and things like that. We are the only ones that go full out for things like proxy contests in the CEF (Closed-end Fund) space. We also look at generating alpha over an asset class. So, for example, if you look at SPACs, and look at the underlying assets, that’s mainly US treasuries, which are yielding nothing. If we can generate return of 600-700 basis points over that asset class, without practically taking any risk, that’s phenomenal.
How has your journey been from graduating from NYU to the current role of “Head of Trading” at Bulldog Investors?
When I first got into this business, I was on the retail side. This was even before NYU. So, I worked at Lehmann Brothers. I worked at Smith Barney, primarily with high net-worth individuals on the retail broker side. From there, I moved to what’s called the mid-office. Worked with a couple of brokers, primarily doing a little bit of everything. I moved to Bulldog in mid-1997 and that’s also when I started grad school. I initially started on the operational side and then I moved to trading and research and things like that. So, I know pretty much the entire business.
You have covered quite a few funds in your career – the Mexico Equity and Income Fund, and then the Special Opportunities Fund. How has this experience been in terms of changing focus, investment analysis and learning?
I am still on the board of directors of the Mexico Equity and Income Fund. We bought this fund in the late 1990s and early 2000s, when it was trading at about 70 cents on the dollar. We accumulated a small percentage of the fund and launched a proxy fight. Oppenheimer ran it at that time and they were doing absolutely nothing as far as the discount was concerned. The portfolio was managed by a company in Mexico which still continues to run the fund. Our problem was with the discount. Once we got control of the fund, we got on the board. We did a tender offer and allowed all shareholders who wanted to get out to do so – the fund shrunk from over $100 million to roughly $20 million. We were able to grow the fund organically and also did rights offerings, and the performance has been great. Pichardo Asset Management in Mexico runs it, and they have been outperforming the Mexico market for around 20 years now. Pichardo has been doing a great job. It is a very well run fund and a great exposure to Mexico if that’s what you are looking for. And with us on the board, we have been able to keep a check on the discount. We are very proactive and very open to hearing from other shareholders, and doing what they want. The shareholders own the fund, and that’s what I think most companies tend to forget. The Special Opportunities Fund was actually a municipal bond fund that was run by UBS Global Asset Management. Again, it was trading at a huge discount. The board was not staggered, and so you could gain control over the board with one proxy fight. We accumulated probably about 5- 10% of the fund at a double-digit discount and we got control of the board. Once we got control of the board, we allowed everybody who wanted to get out to get out, and then we changed the mandate of the fund. Now we use the fund as a vehicle to buy other discounted assets.
Have you seen any major change in this industry since you joined in 1997?
There are more activists now, especially in the last couple of years. I don’t think of “activism” as an asset class. We see it as a strategy, which you can use in a closed-end fund, in an operating company, or anywhere the opportunity arises. In the closed-end funds space, discounts aren’t as wide as they were back in the 90s and that’s primarily because of activists. I think now the fund companies know that if they let this discount linger, people are going to buy in. As a result, you are no longer seeing those wide discounts, but at the same time, even with narrow discounts, you are taking less time to close that gap, so the IRRs are still pretty good. I think slowly people are realizing that with modern corporations there are principal agent problems, and there are managers that don’t own stock in the companies they run, so there will always be room for activists. Managers and corporations tend to do what’s in their best interest, and this is not always aligned with shareholder’s interests, so there will always be room for activists unless the structure of the firm changes.
Your most recently filed 13F shows that you increased your exposure to Real Estate to 24%. What attracts you to this sector? What is your current view on the sector?
As far as making macro