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Monday, August 13, 2001

Gabelli and Gates Shake Hands

Reported by Sean Hanna, Editor in Chief

How hot is the hedge fund business? Hot enough to attract Bill Gates. Yes, that Bill Gates, the Microsoft billionaire. Cascade Investment, the asset management firm that handles the Gates fortune has snapped up a $100 million convertible note issued by Gabelli Asset Management. The purchase gives Cascade and Bill Gates a claim on roughly 6.0 percent of the firm.

The deal marks the first reported time that Gates has invested personal assets in the asset management industry. He has been known as an active investor in technology and media companies, including the telecom and cable industries.

Yet, this is not the first time Mario Gabelli and Bill Gates have done business. In December 1999 Gates purchased a $25 million convertible note representing a 17.2 percent stake in Lynch Interactive Corp., a Gabelli-owned firm that operates 11 rural phone companies.

Gabelli executives disclosed that the note was issued to Cascade as a private placement and that the proceeds are earmarked to develop the global hedge fund business at the Rye, New York-based asset manager.

"This investment together with our existing financial resources provides flexibility in pursuing our growth initiatives," explained Mario J. Gabelli, chairman and chief executive officer in a terse statement.

The note has a ten year term and pays 6.5 percent in the first year and 6 percent annually thereafter. It is convertible into Class A common stock at a price of $53 per share. Shares in Gabelli asset management are trading between $44 and $44.50 after the announcement.

The deal underlines the increased costs of staying in the asset management game as the costs of distribution and technology continue to increase in a stagnant market environment and firms turn overseas for growth.

Gabelli manages some $26 billion in fund assets. A few years ago that was a figure said to make a viable fund complex. It appears that it may not be as today as Gabelli raised the funds to increase liquidity in the firm for expansion. Reportedly, Gabelli now has some $400 million earmarked for its European expansion.

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