In 2023, abrdn announced three significant closed-end fund (CEF) acquisitions.

abrdn acquired 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 $4.56 billion in AUM, cementing abrdn's position as the third largest CEF manager globally.

As part of abrdn's Annual Report published in February, Head of Americas Jim O'Connor was interviewed to discuss why CEFs remain central to abrdn's business strategy.

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 thematic capabilities, enabling us to welcome a team of talented investment professionals specializing 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.”

In a year of fund rationalization, why has abrdn been acquiring closed-end funds?

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

While closed-end funds are often regarded as complex structures, we believe our experience and knowledge sets us apart from our competitors.

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 $37.98 million. 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.”

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.”

Important information

Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund's investment return and principal value will fluctuate so that an investor's shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund's portfolio. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results.

The use of leverage will also increase market exposure and magnify risk.

Closed-end funds are similar to mutual funds in that they professionally manage portfolios of stocks, bonds or other investments. Unlike mutual funds, which continuously sell newly issued shares and redeem outstanding shares, most closed-end funds offer a fixed number of shares in an initial public offering (IPO) that are then traded on an exchange. Open-end funds can be bought or sold at the end of each trading day at their net asset values (NAVs). Because closed-end funds trade throughout the day on an exchange, the supply and demand for the shares determine their market price; closed-end funds'; market prices may fluctuate through the trading day and those prices may be higher or lower than their NAVs. Closed-end funds and mutual funds charge investors annual fees and expenses. All of these products may use leverage to enhance their returns, which can magnify a fund's gains as well as its losses. Closed-end funds typically do not have sales-based share classes with different commission rates and annual fees. Both vehicles seek to deliver returns based on their investment objectives, but neither is FDIC-insured. The Revenue Act of 1936 established guidelines for the taxation of funds, while the Investment Company Act of 1940 governs their structure. Aberdeen Standard Investments does not provide tax or legal advice; please consult your tax and/or legal advisor.