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A Recap of 2013's CEF IPO Market

It was a healthy year with 23 new closed-end funds launched.  

Cara Esser, 12/20/2013

The first half of 2013 was a promising start to the year for closed-end fund initial public offerings. There were 13 launches, two of which each raised more than $2 billion in proceeds, topping the $1 billion raised for 2012's most talked about new fund, PIMCO Dynamic Income PDI. Although "taper talk" in May brought the IPO market to a halt for a few months, fund launches picked back up in the fall, closing the year (as of Dec. 13) with 23 new funds launched. Net proceeds for the year were a healthy $14 billion, though much of this is attributed to a handful of $1 billion-plus funds launched in the first half of the year.

To put 2013 in context, there were 25 IPOs in 2012 raising nearly $12 billion in net proceeds. That year saw the most funds launched in a single year since 2007's 32 IPOs, but the funds launched were much smaller, and the net proceeds fell well short of the $24 billion raised in 2007. Overall, the IPO market, which was essentially nonexistent in 2008 and barely breathing in 2009, remains healthy and continues to grow. The total number and size of new fund launches increased in 2010 and hasn't let up. Table 1 below lists the total number of IPOs and the gross and net proceeds for each of the last 14 years.

 

While the total number of new funds in 2013 fell short of 2012's mark, the market supported larger fund launches this year than in recent history, with the largest and flashiest funds launching in January and June. Investors gobbled up shares of four funds that each raised net proceeds of more than $1 billion (two raised more than $2 billion, a feat not accomplished since 2004). By comparison, 2012's docket included the $1 billion launch of PIMCO Dynamic Income, at the time the largest single IPO since 2007. A few months later, it was surpassed by BlackRock Municipal Target Term BTT, which raised $1.6 billion in August of last year.

Because many CEFs invest in fixed-income securities, taper talk froze the IPO market during July, August, and most of September when no funds launched. This didn't derail the market too much from an absolute number of launches, but the second half of the year accounted for just more than $3 billion in net proceeds, about a fifth of the total year's proceeds.

Income Generation Still King
The table below lists the 23 CEF IPOs of 2013, their Morningstar Category, launch date, net proceeds, the discount or premium, and the total distribution rate as of Dec. 18. Note that all CEF IPOs launch at a premium, typically around 4% to 5%, based on the share price and cost of the launch. For more information about the CEF IPO Premium, visit our CEF Solutions Center.

Cara Esser is a closed-end fund analyst at Morningstar.

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