By Tom Bradley
Kevin O’Leary is an intentionally controversial figure. I quite enjoy his TV persona...in small doses. He stirs the pot and is a great offset to my favorite TV host, Amanda Lang.
I’m not sure what Mr. O’Leary’s day job is exactly, but part of it entails marketing closed and open-ended (mutual) funds. He has been prolific in bringing out new funds across a broad range of asset classes. In a matter of 21 months, the O’Leary funds have grown to include 7 closed and 3 open funds (with more to come) totaling approximately $800 million.
I’m writing about it today because I just saw the following press release in my email:
O’Leary BRIC-Plus Income & Growth Fund has completed its initial public offering for gross proceeds of $174 million, O’Leary Funds Management LP said Friday.
It prompts the question, what advisors are putting their clients into this fund? Or should I say, are letting their clients buy this fund?
I ask this not because I have a view on whether the fund will do well over the long term, but rather because the initial buyers are taking a real pounding. They pay all the costs of bringing the fund to market, and as I’ve pointed out in previous postings (Be Wary of Candy-coated Mutual Funds), they get little or no benefit from doing so. I cannot find one person in the industry who thinks this type of offering is a good deal for the IPO buyer. Nobody.
I also ask because, as smart as Mr. O’Leary and his fund manager are, they have no credible track record in the BRIC arena. Their claim in this area is that they’re bullish on BRIC stocks. But investors that agree with them have alternatives to buying an IPO of a closed-end fund. They can wait and buy the fund when it starts trading at a discount. While they’re waiting they can look for other funds that have reasonable fees. Or they can buy a BRIC ETF, of which there are a few to choose from.
There are times when closed-end funds make sense, but ‘closed until open’ funds represent client abuse to my way of thinking.