How to Improve Fund Manager Ownership Disclosure

In 2004, the SEC provided a big win for fund investors when it declared that fund managers had to report how much they owned of their funds.

Until then, managers could claim to own their funds without backing it up. Investors want to know if their managers are eating their own cooking. And later, we’d see that this data point was one of the better predictors of fund success. After all, who better to assess the appeal of a fund than its managers?

But, at the risk of sounding ungrateful, I want what stock investors have. They get to see exactly how many shares of a company that insiders own and whether they have been buying or selling. But fund investors are stuck with these lousy ranges: $1 to $10,000, $10,001 to $50,000, $50,001 to $100,000, $100,001 to $500,000, $500,001 to $1 million, and over $1 million.

So, managers can’t lie, but they can buy the bottom of a range and make it look better than it is. Also, we don’t even know if managers were buying or selling if they trade within the same range, or if a fund moves in the same direction as a manager’s move between the investment brackets. For example, if a fund loses 20% and a manager’s investment range falls from the $500,001–$1 million bracket to the $100,001–$500,000 bracket, is that because the manager sold or because of depreciation? It would be nice to know, but you don’t.

Moreover, the SEC didn’t inflation-adjust the brackets, which essentially set them up to shrink. Had the SEC inflation-indexed the brackets, the top level would now be $1.6 million.

You can look up how many shares Mario Gabelli owns of his fund company, Gamco, or even his closed-end funds. But with funds, you don’t know. For Gabelli Asset GABAX, Gabelli has more than $1 million invested, and comanager Kevin Dreyer has between $50,001 and $100,000 in the fund.

However, we can see from filings that Gabelli owned a total of $79,159,119 across Gabelli closed-end funds and Gabelli corporate entities like Gamco Investors GAMI in 2021. He owned 1,561,972 shares of Gabelli Equity Trust GAB worth $8,450,270. If that closed-end fund converted to an open-end fund, it would only be reported as more than $1 million.

Even when the SEC set up the standard, it was pretty common for managers at big fund companies to earn eight figures in a year. Today, of course, many more are in that camp. As CEO and a fund manager, Gabelli earned $29,238,340 in 2021. He’s not typical, but fund managers are a well-paid group.

The SEC doesn’t need to inflation-index the investment ranges. Just report the number of shares that managers own in the funds once a year. Then we’ll know if they are buying or selling. We’ll know if they really have conviction in their investments. In addition, some managers invest in other vehicles with the same strategy. It would give a complete picture if they disclosed the dollar value in separate accounts, collective investment trusts, exchange-traded funds, and other vehicles.