Thanks for sharing an interesting idea. According to the latest proxy,
"Mr. Gabelli (or, at his option, his designee) receives an incentive-based management fee in the amount of 10% of our aggregate annual pre-tax profits"
If I'm not mistaken (some of) his kids also do stuff at Gabelli. If senior dies, don't you think there is a non-zero chance that the family inherits this generous contracts?
I would assume that some of the compensation would shift over to the Co-CEO Jamieson and other managers (Gabelli already shifted some of his entitled salary to Jamieson in 2024, I assume a greater change would occur if/when he actually retires). The 10% management fee should go away in name (~9mm (of which half was voluntarily shifted to other managers)), "PM and other Variable Remuneration" incentive fees will likely partially shift over to other managers (~22 mm). My guess would be that the company saves anywhere between 10-15 mm pre-tax. The ~26 mm won't go straight to the bottom line. A slight pushback would be that Gabelli should be more shareholder-aligned once he retires and will not indiscriminately reward management.
AUM outflows will temporarily accelerate once Gabelli retires. So it's anyone's guess as to where the bottom line really lands if/when Gabelli retires. It depends on the change in comp structure and where the AUM lands.
On valuation --
To Dave's point, they did a massive return in 2024 and an EV-based valuation should be fine. From an EV POV, it's arguably cheap even without considering Gabelli's retirement.
My gut instinct is to just value this on a P/E basis and you get a slowly melting ice-cube at ~9-10X P/E, with some downside protection.
If AUM really is stabilizing maybe it deserves a re-rate to 11-13X P/E, and Gabelli retiring should boost the market cap by another ~10-20% assuming no accelerated outflows.
Then again just looking at the GAMI chart and management compensation, and ignoring Gabelli's fame, it looks like the only thing Gabelli managed to do is make insiders rich at the expense of shareholders. I never invested in this thing and I'm already feeling bitter.
As professional readers no doubt appreciate, the investment management business is Mankind's greatest invention for transferring wealth, from clients and public shareholders to senior management (not to be confused with the Excel jockeys who pull the all-nighters). Gabelli's passing is unlikely to disrupt this magical alchemy.
Interesting insights… Gabelli’s other funds.. GNT(bested spx in 3yr total return), GGN, GAB, GUT form the basis of profit Parker’s in my UVC-P3 system of protecting partial profits on continuous basis
I don't know Mario, though of course I have heard numerous stories. The point is GAMI truly is repurchasing shares aggressively, and Mario can't be in charge forever. It's all academic since I don't own the shares, but I think anchoring to the current situation when things are likely to change in coming years could be a mistake.
Yes, and I didn’t mean to be dismissive of your work which I follow with passion and admiration. The issue in my view is: when Mario won’t be in charge, the situation will be materially worse.
Oh I didn't take it that way at all. And yes, we absolutely should consider the alternative that whomever is in charge after Gabelli could be a downgrade.
Thanks for sharing an interesting idea. According to the latest proxy,
"Mr. Gabelli (or, at his option, his designee) receives an incentive-based management fee in the amount of 10% of our aggregate annual pre-tax profits"
If I'm not mistaken (some of) his kids also do stuff at Gabelli. If senior dies, don't you think there is a non-zero chance that the family inherits this generous contracts?
I would assume that some of the compensation would shift over to the Co-CEO Jamieson and other managers (Gabelli already shifted some of his entitled salary to Jamieson in 2024, I assume a greater change would occur if/when he actually retires). The 10% management fee should go away in name (~9mm (of which half was voluntarily shifted to other managers)), "PM and other Variable Remuneration" incentive fees will likely partially shift over to other managers (~22 mm). My guess would be that the company saves anywhere between 10-15 mm pre-tax. The ~26 mm won't go straight to the bottom line. A slight pushback would be that Gabelli should be more shareholder-aligned once he retires and will not indiscriminately reward management.
AUM outflows will temporarily accelerate once Gabelli retires. So it's anyone's guess as to where the bottom line really lands if/when Gabelli retires. It depends on the change in comp structure and where the AUM lands.
On valuation --
To Dave's point, they did a massive return in 2024 and an EV-based valuation should be fine. From an EV POV, it's arguably cheap even without considering Gabelli's retirement.
My gut instinct is to just value this on a P/E basis and you get a slowly melting ice-cube at ~9-10X P/E, with some downside protection.
If AUM really is stabilizing maybe it deserves a re-rate to 11-13X P/E, and Gabelli retiring should boost the market cap by another ~10-20% assuming no accelerated outflows.
Then again just looking at the GAMI chart and management compensation, and ignoring Gabelli's fame, it looks like the only thing Gabelli managed to do is make insiders rich at the expense of shareholders. I never invested in this thing and I'm already feeling bitter.
Let's not forget the recent IPO of Horizon Kinetics and the long suffering owners of FRMO in the pantheon of (semi) famous asset managing companies!
Reminds me a bit of Dillard's (DDS) ~5 years back. That worked out quite well for shareholders.
Great idea. Any idea on the succession planning component, although a windup wouldn't be the worst thing either.
As professional readers no doubt appreciate, the investment management business is Mankind's greatest invention for transferring wealth, from clients and public shareholders to senior management (not to be confused with the Excel jockeys who pull the all-nighters). Gabelli's passing is unlikely to disrupt this magical alchemy.
Interesting insights… Gabelli’s other funds.. GNT(bested spx in 3yr total return), GGN, GAB, GUT form the basis of profit Parker’s in my UVC-P3 system of protecting partial profits on continuous basis
Hi Dave,
It looks like Mario waived $5M of compensation for the current quarter, increasing the run rate op income.
I haven't looked at GAMCO for a number of years but I believe this was something that happened as a matter of course back then.
Best, Steve
Tangential - have you looked at Horizon Kinetics? HKHC
If you knew Mario, you would know this is all a pie in the sky
I don't know Mario, though of course I have heard numerous stories. The point is GAMI truly is repurchasing shares aggressively, and Mario can't be in charge forever. It's all academic since I don't own the shares, but I think anchoring to the current situation when things are likely to change in coming years could be a mistake.
Yes, and I didn’t mean to be dismissive of your work which I follow with passion and admiration. The issue in my view is: when Mario won’t be in charge, the situation will be materially worse.
Oh I didn't take it that way at all. And yes, we absolutely should consider the alternative that whomever is in charge after Gabelli could be a downgrade.