One strange little subclass of public company is the “famous investor” holding company. Berkshire Hathaway is the most obvious example, but there is also Carl Icahn’s Icahn Enterprises LP, Warren Liechtenstein’s Steel Partners Holdings LP, and Bill Ackman’s Pershing Square Holdings.
One that seems to escape attention is Mario Gabelli’s Gamco Investors Inc (OTCMKTS:GAMI) owns the Gabelli asset management empire with $33.4 billion in assets under management across numerous strategies as of June 30, 2025.
Mario Gabelli likely needs no introduction for many readers, but for those unfamiliar, he is one of the towering figures of value investing. Mario Gabelli grew up in humble circumstances in the Bronx and elbowed his way into the Blue-Blooded world of Wall Street through wits and work ethic alone. Gabelli was one of the first to understand the value in companies that reported accounting losses but nevertheless produced prodigious free cash flow due to their long-lived assets, in insight he applied to the nascent cable television industry. Gabelli launched a broker-dealer in 1976 and then began managing money for clients. Those were fruitful days for value investing, and the firm prospered. Gabelli Asset Management IPOed in 1999, and the firm continued to thrive in the early years of the 21st century.
More recently, times have been tougher for GAMCO, with two big headwinds causing AUM to plateau and then decline. First, the rise of passive investing took its toll. Hundreds of billions in investor capital has flowed from active managers into passive index-tracking ETFs and mutual funds. And who can really blame investors? Why invest in an actively-managed mutual fund that more than likely would not beat its benchmark when all but zero-cost ETFs are right there? Gabelli funds were generally good performers, but still suffered outflows in favor of passive management. The second and perhaps more important factor is that “value investing,” at least as traditionally understood and practiced, hasn’t worked very well for some time now. Gabelli’s strong focus on asset value and cash flows has not been rewarded by the market, which has shifted its focus almost entirely to growth stories and future tech. (Please note I am not saying the market is entirely wrong here. A lot of “value investors,” including, upon occasion, your humble author, have over-fixated on current cash flows and failed to appreciate the declining terminal values of many mature industries being disrupted by emerging technologies.)
GAMCO managed the decline well, remaining profitable when numerous other active managers failed and liquidated. But revenues, which peaked in 2014 at $422 million, have declined to $233 million for the twelve trailing months. Operating margin peaked in 2018 at a whopping 54.7%, but has trended downward to 32.8% as fixed costs eat up a greater portion of revenue. Facing the likelihood of continued revenue decline and a lack of investor interest, GAMCO delisted from the NYSE in 2022 and deregistered its shares shortly thereafter.
Today, GAMCO trades over-the-counter with the ticker GAMI. The company continues to provide quarterly and annual reports in timely fashion. Operationally, there are some encouraging signs. Assets under management appears to have troughed in 2022, though the subsequent increase is due entirely to market appreciation. Recently, assets under management have continued to experience net redemptions of about 5% annually. Here’s a look at AUM movement in 2024, 2023, and 2022.
The first half of 2025 was strong for GAMCO, with net outflows reaching the lowest level in years. Could we perhaps be reaching the tail end of migration from active strategies to passive? I think it is possible that most of the capital that can move to passive strategies already has, and what remains will be “stickier.” I am not calling a bottom here, but I do think it is likely that GAMCO’s historical rate of AUM depletion will decline to 2-3% annually from 5%, which makes an enormous difference in intrinsic value.
At the current GAMI ask price of $24.60, GAMCO has a market capitalization of $550 million. (The market capitalization shown on OTCMarkets.com and possibly elsewhere is incorrect, as it excludes the value of the “B” shares held by insiders.) GAMCO has balance sheet cash and securities of $183 million. The liability side of the balance sheet is very clean, with zero debt. Excess cash and securities is likely around $150 million, leaving an enterprise value of $400 million. For our $400 million, we get trailing operating income of $70 million. Run-rate operating income as of the quarter just ended is $77 million at an EBIT margin of 32.5%. So, depending on which figure you prefer, the market is valuing GAMO at 5.2-5.7x trailing operating income. Assuming GAMCO’s AUM is stable, that could be a pretty cheap valuation.
However, it should be obvious that I am making a big assumption here: that the $150 million or so in excess cash and securities is worth exactly that. And that only holds if the company uses this horde in a way that is worth at least $150 million to shareholders. This is a mistake I see a lot of investors make. Excess cash is great, but what’s it worth if the company has zero plans to give it back or use it productively? A lot less than its face value.
Fortunately, this is not an issue with GAMCO. I say this because GAMCO is in aggressive return of capital mode. The company uses every cent it earns and then some for massive share repurchases and dividends. In 2024, the company returned 19% of current market capitalization. Year-to-date, it has returned 3.5% of market cap, including share repurchases made after quarter’s end. This is a slowdown from 2024, but the company also dedicated around $10 million (in present value terms) to acquire $1 billion in assets under management, a very productive use of capital from my vantage point.
What intrigues me most is that if GAMCO continues repurchasing shares at the rate of 500,000-1,000,000 shares per year, it will very soon run out of public shares to buy. GAMO has a dual-class share structure. A shares are owned by insiders and the public. At June 30, 2025, there were 3.37 million A shares outstanding, of which 2.37 million were in the public float. The company’s B shares are owned almost entirely by Mario Gabelli himself. There are 18.98 million of these. As it stands, assuming GAMI’s share price does not move up substantially, there is only 2-5 years of A share “supply” remaining in public markets. Even if Horizon Kinetics and Neuberger Berman, who collectively own 785,000 A shares, sell into the buyback, we are looking at A shares becoming an endangered species by the end of the decade.
Something’s got to give. Either GAMI shares rise and the pace of the buyback slows dramatically, or the number of A shares outstanding dwindles to nothing.
There’s another factor here that cannot be ignored: Mario Gabelli himself. Through his ownership of the super-voting B shares, Mr. Gabelli is in the driver’s seat. It’s possible that Gabelli could choose to have GAMCO pursue some huge and ill-advised takeover, or cease its repurchase program and hoard cash, but I don’t think it’s likely. I have been involved in a few Gabelli-controlled companies over the years, with greater or lesser degrees of success, but they all follow a fairly simple and sensible strategy of making low/medium risk productive investments when they are available and returning capital to shareholders when they are not.
The bigger question is what happens after Mario Gabelli. Gabelli is 83, and while he seems quite vigorous for a man his age, at some point he will no longer be at the helm of GAMCO. Now, I don’t think that GAMCO will be adrift without Gabelli. The firm has a strong culture and numerous portfolio managers and executives trained in the GAMCO way. But a very interesting thing will happen to GAMCO’s profits when Mr. Gabelli exits stage right. For its entire existence as a public company, Mario Gabelli’s employment contract has stipulated that he is to receive 10% of the firm’s annual pre-tax profits. Quite generous, but he did build the firm. Here is Mr. Gabelli’s GAMCO compensation for the last decade. Keep in mind the firm currently earns about $70 million in pre-tax income after these payments.
Yes, I promise this is accurate. Straight from GAMCO proxy statements. From 2015 through 2024, Mr. Gabelli received compensation averaging $41.5 million per year and totaling $415 million, a figure that exceeds GAMCO’s current enterprise value. Not bad work! Adding this compensation back to GAMCO’s reported results and arriving at an adjusted valuation is simple math, so I won’t belabor the point.
In GAMCO, we have a situation where an already low-multiple is likely to get much cheaper in a few years, and where shareholders will see intrinsic value rise as cheap shares are gobbled up by the company. But of course, there are numerous risks. The company’s recent improved AUM retention trends could reverse, and the ice cube could melt more quickly than expected. EBIT declines could outpace AUM losses thanks to operating leverage. The market itself could experience a deep downturn, which would cut deeply into GAMCO’s revenue. GAMCO’s equity strategies tend toward the defensive, but they would not be immune to a severe market drawdown. GAMCO could prove so effective at buying back shares that the already low liquidity of their shares could all but vanish, leaving investors stuck in a highly illiquid security and awaiting an uncertain catalyst.
That’s the story. This is an optically cheap company that is rapidly buying back shares. The earnings trajectory seems to be stabilizing, and there is a potential upside earnings catalyst from a future leadership transition. On the other hand, the active asset management industry continues to experience headwinds, the company’s results are highly levered to stock market performance, and GAMCO is a controlled company, for better or for worse. Happy diligence.
Article by David Waters, Alluvial Capital Management
Alluvial Capital Management, LLC does not hold shares of GAMO Investors Inc. for client accounts it manages. Alluvial Capital Management, LLC may hold any securities mentioned on this blog and may buy or sell these securities at any time. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at [email protected]
