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Associated Capital Group, Inc.  (AC)
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    Sector  Financial    Industry Investment Services
 


 

Associated Capital Group, Inc.

Business Description


We are a newly formed Delaware corporation organized to be the parent operating company for the Spin-off of GAMCO Investors, Inc.'s ("GAMCO's") alternative investment management business, institutional research services operations and certain cash and other assets.

On November 30, 2015, GAMCO distributed all the outstanding shares of each class of common stock of AC Group on a pro rata one-for-one basis to the holders of each class of GAMCO's common stock. Prior to the distribution, GAMCO contributed the 93.9% interest it held in Gabelli Securities, Inc. ("GSI") and certain cash and other assets to AC Group. GSI is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended.

GSI and its wholly owned subsidiary, Gabelli & Partners, LLC ("Gabelli & Partners"), collectively serve as general partners, co-general partners or investment managers to investment funds including limited partnerships and offshore companies (collectively, "Investment Partnerships"), and separate accounts. We primarily manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The business earns fees from its advisory assets, and income (loss) from trading and investment portfolio activities. The advisory fees include management and incentive fees. Management fees are largely based on a percentage of the portfolios' levels of assets under management. Incentive fees are based on the percentage of profits derived from the investment performance delivered to clients' invested assets.

We operate our institutional research services operations through G.research, LLC ("G.research"), a wholly owned subsidiary of GSI. G.research is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Through G.research, we provide institutional research services as well as act as an underwriter. G.research is regulated by the Financial Industry Regulatory Authority ("FINRA"). G.research's revenues are derived primarily from institutional research services.

We primarily manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The business earns fees from its advisory assets, and income (loss) from trading and investment portfolio activities. The advisory fees include management and incentive fees. Management fees are largely based on a percentage of the portfolios' levels of assets under management ("AUM"). Incentive fees are based on the percentage of profits derived from the investment performance. As of December 31, 2015, we managed a total of $1.08 billion in assets.

In our event-driven value funds we seek investments trading at prices that differ from those determined using our proprietary "Private Market Value (PMV) with a Catalyst" methodology where we have identified a near-term catalyst to narrow the market difference to PMV. Catalysts can include a spin-off, stock buyback, asset sale, management change, regulatory change or accounting change.

Event merger arbitrage is a subset of event-driven value investing where the catalyst, for example, an acquisition of the company, has been announced. In event merger arbitrage, the goal is to capture the difference between the market value of a security and what the acquirer is paying in the acquisition. Returns in merger arbitrage are primarily driven by the successful completion of the announced transactions in the portfolio. Other factors that can affect returns include short-term interest rates and the availability of investable deals. While merger arbitrage returns have historically been non-market correlated and deal-specific, event-driven value returns are more correlated to broader equity markets.

We generally manage assets on a discretionary basis and invest in a variety of U.S. and foreign securities utilizing a bottom up value investment style. Our managed funds primarily employ absolute return strategies such that we strive to generate positive returns regardless of market cycles or performance.

We received a substantial portfolio of cash and investments held by GAMCO prior to the Spin-off. We expect to use this proprietary investment portfolio to provide seed capital in introducing new products, expand our geographic presence, develop new markets and pursue strategic acquisitions, alliances and lift-outs, as well as for shareholder compensation in the form of share repurchases and dividends. Our proprietary portfolios are largely invested in products we manage or that are managed by GAMCO.

Our business strategy targets global growth of the business through continued leveraging of our proven asset management strengths including the long-term performance record of our alternative investment funds, diverse product offerings and experienced investment, research and client relationship professionals. In order to achieve performance and growth in AUM and profitability, we are pursuing a strategy which includes the following key elements:

Continuing an Active Fundamental Investment Approach

We have been managing hedge fund assets since 1985, when we launched our first merger arbitrage fund which still exists today, with an unparalleled thirty year track record. Our results through a multitude of market cycles clearly demonstrates our core competence in event driven investing. Our legacy of Gabelli "Private Market Value (PMV) with a Catalyst™" investing remains the principal management philosophy guiding our business operations. This method is based on investing principles articulated by Graham & Dodd, and has been further augmented by our founder Mario J. Gabelli. This approach, however, will not necessarily be utilized in connection with all products.

Growing our Investment Partnerships Advisory Business

We intend to grow our Investment Partnerships advisory business by gaining share in existing products and introducing new products within our core competencies, such as event and merger arbitrage. In addition, we intend to grow internationally.

Capitalizing on Acquisitions, Alliances and Lift-outs

We intend to leverage our research and investment capabilities to selectively and opportunistically pursue acquisitions, alliances and lift-outs that will broaden our product offerings and add new sources of distribution.

Pursuing Partnerships and Joint Ventures

We plan to pursue partnerships and joint ventures with partners that we believe have a strong fit with AC with respect to product quality and that might provide Asian/European distribution capabilities that would complement our U.S. equity product expertise. We expect to pursue investments in operating businesses based on our principal management philosophy, targeting opportunities with non-market correlated returns.

Growing our Institutional Research Services Business

We intend to grow our Institutional Research Services business by increasing the breadth of our client base and by increasing our touch points and interactions with existing clientele in an effort to increase trading activity and payment flow.

Continuing Our Sponsorship of Industry Conferences

G.research, our institutional research services business, sponsors industry conferences and management events throughout the year. At these conferences and events, senior management from leading companies share their thoughts on the industry, competition, regulation and the challenges and opportunities in their businesses with portfolio managers and securities analysts.

   

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