Douglas G. Ober, Chairman, Adams Express Company and Petroleum & Resources Corporation President, Closed-End Fund Association

Financial pressures on Wall Street have resulted in diminished research coverage of closed-end funds as well as many small-cap and mid-cap companies. Economic and regulatory pressures have squeezed research departments at all the major investment banks. Securities firms have reacted swiftly by cutting research staffs, resulting in overall coverage reductions and an increase in the number of companies individual analysts are being asked to cover. The recent settlement with the SEC forbidding investment banks from compensating their analysts from investment banking revenues suggests that the cost-cutting trend will continue.

Against this backdrop, CEFA brought together a working committee of prominent closed-end fund industry executives for a meeting last month to address ways to maintain visibility among analysts and investors. I served as the chairman of the meeting. The Committee has assumed the charge of gaining greater uniformity in the gathering, dissemination and reporting of data by closed-end funds. Strong support for the initiative came from a broad spectrum of the industry represented on the Committee, including representatives from equity, fixed income, and country funds, brokerage firm analysts, and executives from data gathering and processing organizations.

While data uniformity for closed-end funds has been talked about for years, the increased pressure for analysts to do more with less provides a strong catalyst for this effort. At the same time, as a chief investment officer, I welcome the challenge to lead reform on these technical issues.  Uniform reporting is encouraged by analysts and will streamline their ability to cover the industry, and is also supported by data gathering organizations. The meeting allowed an open discussion, as we invited participants to weigh in on the issues and everyone contributed to the debate.

We flagged certain calculations for discussion at the next meeting, including how funds will calculate NAV returns, whether reinvestment should occur at market price or NAV, and whether the impact of reinvestment should occur on pay date or ex-dividend date. Calculations of leverage, undistributed net investment, and the definitions that drive classification of portfolio sectors and geography will also be addressed. For example, we will discuss whether a company’s domestic classification will be determined by where it is incorporated,  where it is headquartered, or where it conducts most of its business – with a goal of reaching an industry consensus on this issue. 

The reforms advanced by the Committee will be the result of a coordinated effort by fund organizations, data providers and analysts. Data providers offered to develop a prototype reporting format for use by all funds, on the expectation that a standardized layout will ease statistical reporting. Other participants will tackle uniformity on statistical definitions.

While data standardization will not happen overnight, I am upbeat about the Committee’s progress. We agreed that time is of the essence, and I am confident we will be able to make headway in providing a level of uniformity that will support wider coverage of closed-end funds by Wall Street. We will meet again soon to continue progress on these initiatives and I will provide further updates as things progress.

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