Voting on Saba Capital’s proposals is continuing as we edge closer to the next few investment trust general meetings. On Jan. 24, Herald Trust claimed victory over the proposals, but with six more trusts left to meet, the fight is far from over. The battle moves again to next week, with the majority of general meetings happening on Feb. 3 and Feb. 4.
We summarised what’s going with UK investment trusts on in a recent article, which we are updating with the voting results as they come in.
US hedge fund and activist investor Saba Capital has made clear that they intend to replace the entire board of directors at all seven (now six) trusts, as well as replace the fund managers, citing underperformance. This means:
- Investment trust board directors would be replaced by Saba-appointed directors.
- Investment trust fund managers would also be replaced (investment trust boards and investment managers are separate).
But exactly how the new boards and managers will change the investment approach to close the gaps between the net asset value (NAV) and the share price to outperform their benchmark is not known.
It is also not known who Saba intends to appoint as investment managers yet, only that the agreements with the current managers will be terminated. Saba has, however, named the people it wants on the trust boards.
We have outlined the current managers and boards, as well as the proposed new boards in the table below. As the Association of Investment Companies (AIC) noted, it’s clear that Saba’s proposals would lead to a reduction in headcount, from four/five/six person boards replaced by two-person boards.
What would follow the management changes? Saba is offering “liquidity events”, including tender offers and share buybacks, “so that all shareholders immediately have the opportunity to receive substantial liquidity near NAV, if they wish.”
Saba also wants to refocus investment trust mandates so they can buy other trusts at a discount and/or combine them with other trusts.
Investors are Turning Out to Vote
While the majority of general meetings are taking place during the first week of February, investment platforms are closing their votes days in advance, meaning the deadlines to make their voices heard mostly expire before the end of January.
The UK investment platform Hargreaves Lansdown has reported record voting among its users. It noted that 41% of its clients invested in Herald Investment Trust HRI voted, while more than half of investors in European Smaller Companies Trust ESCT have already voted.
Emma Wall, head of platform investments at Hargreaves Lansdown, says: “We have seen a significantly higher proportion of clients voting than normal as a result of our campaign to proactively inform clients. While this is something to celebrate, we urge those who have not yet voted to do so as it’s really important they exercise their right to vote, whatever their choice is. Shareholder rights are one of the key benefits of the investment trust structure.”
What’s the Background to This Investment Trust Turmoil?
In a webinar on Jan. 14, Weinstein laid out the terms of engagement for the upcoming meetings. Underperformance is a key issue. The circular stated:
“Saba is convening the General Meetings because we believe the current Boards of Directors and investment managers have failed to perform versus their benchmarks, resulting in deep trading discounts to net asset value, which we believe have only recently narrowed as a result of Saba’s investment.”
The company’s strategy is “to deliver substantial liquidity and long-term returns for all shareholders”.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
