- Saba’s investment totals £1.5 billion
- Six of the seven trusts underperformed
- Company proposes sacking directors
The normally-sleepy world of investment trusts received a wake-up call this morning with the publication of a shareholder letter by activist investor Saba Capital Management calling for change at no fewer than seven well-known funds.
The firm, which has a history of successfully instigating change, has called general meetings at each of the trusts, where it is a major investor, because in its view the current boards ‘have failed to hold the investment managers accountable for the wide trading discounts to net asset value (“NAV”) and their inability to deliver sufficient shareholder returns’.
MAJOR PLAYER
Saba Capital was set up by hedge fund manager Boaz Weinstein, former co-head of global credit trading at Deutsche Bank, and is one of the biggest investors in investments trusts with a track record of ‘pursuing changes that create long-term value for shareholders’.
Weinstein looks to apply techniques from his institutional markets background to a sector which is largely driven by small retail investors to ‘realise significant value’ as he puts it.
‘What caught my attention for the past three years is the UK trust industry’s discounts have deepened as a consequence of investors losing faith in managers after shockingly poor performance in certain trusts. At the same time, the boards have not held those managers accountable,’ argues the manager.
While Saba prefers to engage privately with boards, ‘underperformance, persistent trading discounts and disengaged management teams leave us no choice but to act,’ says Weinstein.
Saba has stakes ranging from just under 19% to over 29% in seven well-known trusts: Baillie Gifford US Growth (USA), CQS Natural Resources Growth & Income (CYN), Edinburgh Worldwide (EWI), European Smaller Companies (ESCT), Henderson Opportunities (HOT), Herald (HRI) and Keystone Positive Change (KPC).
‘UNLOCKING VALUE’
Over the three years to 13 December, the total shareholder return compared with their respective benchmarks has ranged from -52.8% at Baillie Gifford US Growth to +11% at European Smaller Companies, leading Saba to claim the trusts’ managers and directors ‘have failed shareholders’.
The firm has requisitioned general meetings for each of the seven trusts to be scheduled at the latest by early February 2025, giving shareholders the chance to vote on two resolutions – removing the current directors, and appointing new directors of Saba’s choice.
‘By fully reconstituting the trusts’ boards, we believe we can unlock greater value for shareholders and address the long-term structural issues that have hamstrung the Trusts’ return potential under current leadership. Each of the director candidates shares a deep commitment to improving shareholder returns and putting your interests above their own,’ says Weinstein.
If its directors are appointed, they would have a range of options including tender offers and share buybacks, replacing the existing managers and even changing the trusts' investment mandate or consolidating them with other trusts to realise scale benefits and synergies.
Disclaimer: The author (Ian Conway) owns shares in Edinburgh Worldwide Investment Trust.
