Spotlight On Abrdn’s Closed-End Fund Strategy

In 2023, abrdn announced three significant closed-end fund (CEF) acquisitions, acquiring five CEFs from Macquarie Asset Management, four listed CEFs from Tekla Capital and agreeing to acquire four CEFs from First Trust. These acquisitions, taken in combination, would add £3.6bn in AUM, cementing abrdn’s position as the third largest CEF manager globally.

As part of abrdn’s Annual Report, published in February, Jim O’Connor, abrdn’s Head of Americas, was interviewed about why CEFs remain central to the Investments business’ strategy:

Q: What was the attraction of Tekla Capital?

“As a specialist manager, we seek to deliver value in the areas of the market where there are inefficiencies and where active management can provide superior risk adjusted returns.

This acquisition represents a strategic extension of our thematics capabilities, enabling us to welcome a team of talented investment professionals specialising in the healthcare sector. We believe this to be an area of growth underpinned by megatrends in the investable universe with demographics and technological innovations driving an ever-increasing demand for life science services.

CEF acquisitions follow our strategy of building scale, focusing on asset classes where we have strength, and bringing AUM to the group in a perpetual capital structure.”

Q: In a year of fund rationalisation why has abrdn been acquiring closed-end funds?

“CEFs are an area of specialism and vehicles which support long-term investment outcomes for retail and institutional investors that can’t be replicated by other investment vehicles.

While CEFs are often regarded as complex structures, we believe our experience and knowledge sets us apart from our competitors. Our scaled operating model enables us to look after existing CEF product ranges with the ability to grow via the launch of new funds, secondary market issuances, and corporate mergers and acquisitions of funds.

In December 2023, abrdn announced that we would invest an amount equal to up to six months’ worth of management fees in the shares of our UK listed CEFs. The total amount invested as part of this initiative will exceed £30m. This exercise aims to demonstrate our strong advocacy for the integrity of the CEF business, and our desire to closely align ourselves with the shareholders of the funds we manage.”

Q: abrdn has executed more listed CEF acquisitions than any other investment manager in the last 15 years, will this trend continue?

“Market headwinds have created a challenging environment for CEFs, which have been trading at their widest discount levels since the financial crisis. This has contributed to an environment with opportunities to acquire funds at attractive valuations. We continue to review the marketplace for opportunities to drive additional scale and efficiency in our key capabilities or to add new capabilities of strategic significance.”