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RiverNorth Flexible Municipal Income Fund II
RiverNorth Flexible Municipal Income Fund II arbitrages closed-end muni discounts and direct bonds, run by Patrick Galley out of Chicago.
RiverNorth Flexible Municipal Income Fund II
RiverNorth Capital Management launched the Flexible Municipal Income Fund II in 2020 as a perpetual closed-end fund, extending a series that began with the original RiverNorth Managed Duration Municipal Income Fund. The strategy is anchored by CIO Patrick Galley, who structures portfolios around discounted closed-end municipal funds and direct municipal bond holdings. The Chicago-based manager operates with a mandate that allows tactical shifts between high-yield and investment-grade municipal credits, a flexibility that defined the fund's initial portfolio during the pandemic-era dislocation. The fund deploys capital across a spectrum of municipal bonds — including tobacco settlement, hospital, and transportation revenue credits — while layering in closed-end fund arbitrage when discounts to net asset value widen. This dual structure lets the portfolio capture total return from both carry and mean-reverting price gaps. Confirmed holdings have included Nuveen AMT-Free Quality Municipal Income Fund and BlackRock Municipal Income Trust, vehicles selected for their persistent discount histories. The investment footprint spans state-specific paper from California, New York, and Illinois, alongside national-sector exposures in charter schools and senior living facilities. The fund operates as a registered investment company under the 1940 Act, distributing monthly income that reflects the manager's ability to source yield within tax-advantaged structures. RiverNorth as a firm managed approximately $5 billion across its capital markets and municipal platforms as of early 2024. May 2024: The fund declared a monthly distribution of $0.1042 per share, maintaining a payout rate established after a managed distribution policy adjustment earlier in the year (per the firm, May 2024). What separates RiverNorth's approach from a passive muni ETF or a standard open-end fund is the closed-end wrapper itself — permanent capital lets the advisor hold illiquid positions through volatility without facing redemptions, a structural advantage that aligns with the discount-capture strategy. The firm's trading desk actively monitors secondary-market pricing for both its own CEF holdings and the target funds it arbitrages, creating a feedback loop between portfolio management and market-making that most buy-and-hold muni managers lack.
General information
Firm type
Asset Manager
Year founded
2020
AUM
Undisclosed
Location
Region
North America
Country
United States
City
Chicago
Corporate office
Chicago, IL, United States
Principals
Brian H. Schmucker
President
Patrick W. Galley
Chief Investment Officer
Sector focus
Frequently asked questions
Who runs investment decisions at RiverNorth Flexible Municipal Income Fund II?
Patrick W. Galley serves as Chief Investment Officer for RiverNorth Capital Management and is the lead portfolio manager for the firm's municipal closed-end fund strategies. He established the original Managed Duration Municipal Income Fund and has overseen the launch of subsequent funds in the series. Galley's investment committee makes final decisions on discount-capture trades, credit research, and duration positioning across the portfolio.
How does the fund source its proprietary edge?
The fund's edge comes from operating as a closed-end fund that buys other closed-end funds at discounts to net asset value, alongside direct municipal bond positions. The closed-end structure provides permanent capital, which means the advisor can hold positions through periods of widening discounts without worrying about shareholder redemptions. The firm's trading desk actively monitors secondary-market pricing across the CEF universe to identify exploitation opportunities.
What investment stages and instruments does the fund target?
The fund operates in liquid markets only — buying exchange-listed closed-end municipal bond funds and individual municipal bonds in the secondary market. It does not invest in private placements or direct loans to municipalities. The mandate spans the full credit spectrum from pre-refunded AAA bonds to non-rated high-yield tobacco and project revenue bonds.
How is this fund different from the original RiverNorth Managed Duration Municipal Income Fund?
The Flexible Municipal Income Fund II shares the same underlying discount-capture and direct-bond strategy but was launched separately in 2020 with a portfolio aligned to post-pandemic municipal credit conditions. The primary difference is vintage — the fund's initial portfolio was seeded during a period of historic municipal bond market stress, giving it a different cost basis and yield profile than the original fund. Both funds are managed by the same team under Patrick Galley.
What is the fund's regulatory structure?
The fund is a registered investment company operating under the Investment Company Act of 1940. It trades on a stock exchange as a perpetual closed-end fund, meaning shares are bought and sold at market prices that may diverge from the underlying net asset value. This structure is fundamental to the strategy because it creates the permanent capital base that enables the discount-capture arbitrage.
What geographic exposure does the fund carry?
The fund holds exposure to municipal bonds issued across the United States, with confirmed positions in obligations from California, New York, Illinois, Texas and Florida. State-specific exposure weights shift based on relative value analysis conducted by the credit research team in Chicago. The fund does not invest in Puerto Rico or other territorial obligations unless specifically disclosed.
Does the fund participate in tender-option bond structures or leverage facilities?
RiverNorth closed-end municipal funds have historically used tender-option bond programs and leverage to enhance yield. The Flexible Municipal Income Fund II is permitted to use structural leverage including variable-rate preferred shares and tender-option bond trusts. Leverage ratios are monitored by the investment committee and disclosed in quarterly shareholder reports (per the firm's official communications).
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