admin US hedge fund takeover of investment trusts may be ‘positive’
US hedge fund Saba Capital is attempting to remove the boards of seven UK investment trusts, a move which could be positive for advisers’ clients, according to Iain Scouller, analyst at Stifel.
Saba Capital had previously declared stakes of between 19 and 29 per cent in each of the seven trusts, and so is the largest investor in each, though without a majority stake in any.
The seven trusts in question are:
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the £830mn Baillie Gifford US Growth,
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the £139mn CQS Natural Resources Growth and Income,
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the £809mn Edinburgh Worldwide Investment trust,
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the £650mn European Smaller Companies investment trust,
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the £92mn Henderson Opportunities Trust,
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the £1.2bn Herald investment trust, and
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the £150mn Keystone investment trust.
Each of those trusts has suffered performance issues in recent years and traded at wide discounts to net assets until Saba’s shareholding was revealed.
In each case, Saba has requested an extraordinary general meeting (EGM) at which investors would have the opportunity to vote to replace the directors of the trusts and replace them with Saba representatives.
Those representatives will then decide to either, appoint Saba employees to manage the money in the trusts, hire a different firm to run the money in the trusts, change the investment focus of the trusts, or merge the trusts with others.
Saba Capital was founded by Boaz Weinstein and has assets under management of about £4.3bn.
In his letter to the shareholders of the trusts, many of whom will be advised clients, Weinstein wrote: “The current boards’ failure to hold management accountable for the trusts’ poor performance has left us no choice but to take the extraordinary step of requisitioning a General Meeting for each of the seven trusts.
“To swiftly capitalize on the significant upside opportunity for all shareholders, we have requested that each board conduct its General Meeting as soon as possible and expect that all General Meetings will be scheduled, at the latest, by early February 2025.”
The letter continued: “By fully reconstituting the trusts’ boards, we believe that 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.”
Weinstein said his preferred approach is to engage privately with boards, but as he feels the boards would not engage with him and make changes, he felt he had “no choice” but to act.
Stifel’s Scouller believes it is positive that Saba’s plan has been revealed and shareholders can now make their decision.
He feels Saba will win at least some of the votes, though he believes the main benefit to clients may be that the boards of the seven trusts involved try to woo investors with changes of their own to improve the performance of the trusts.
Matthew Read, senior analyst at Quoted Data is more sceptical.
He told FT Adviser: “The activist investor has been stalking parts of the investment companies’ sector for some time but, despite various boards and managers attempting to engage with it, all of those that we have spoken to have said that Saba was not interested in talking to them.
Read added: “Reading this morning’s statement, we see an obvious flaw in their strategy. Saba wants shareholders to replace the current boards and deliver on its plan to ‘quickly deliver substantial liquidity and long-term returns for all shareholders’.
“However, those two are often mutually incompatible, particularly for some of the funds it is targeting where the underlying holdings are less liquid – Herald being the obvious example as it is a big fund with a huge tail of small illiquid positions that trade by appointment that could take years to sell off and you would likely move the market against you in many of these, particularly once the market spots you as a forced seller.”
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