We did some really quick and dirty due diligence on the Highland Income Fund (NYSE:HFRO) and unfortunately most of the CEFs holdings are Level 2 assets. This means some there is some observable data from which to value the assets (versus Level 1 which is for instance common stock).
We love the funds with level 1 assets (mostly Gabelli related funds)–but we can live with Level 2 given that they will need to maintain a high asset coverage ratio. As of 12/31/2018 their asset coverage ratio was 306%. With this type of investment we watch the coverage ratio more than the fund performance–this is the important part of making our capital secure.
The fund has net asset of just over $1 billion (as of 12/31/2018) and has been in existence since 2000.
We are less excited about this issue than we were 10 minutes ago when irrational exuberance got the best of us.
At a reasonable price on the OTC Grey market we will likely still purchase a small position in this new issue.