US activist investor Saba Capital has been defeated five times in three days in its bid to force management change on seven UK-listed investment trusts. Today’s general meeting at Janus Henderson’s The European Smaller Companies Trust ESCT takes the tally to six trusts where investors rejected the company’s proposals.
On Feb. 4, shareholders in Henderson Opportunities HOT and CQS Natural Resources Growth & Income CYN voted overwhelmingly against Saba’s resolutions, following in the footsteps of Baillie Gifford US Growth USA and Keystone Positive Change KPC, which defeated the proposals on Feb. 3.
That just leaves one meeting: Baillie Gifford vehicle Edinburgh Worldwide Trust EWI on Feb. 14.
What Did Saba Capital Propose?
The hedge fund suggested replacing the entire board of directors at all seven trusts, as well as replacing the fund managers, citing underperformance.
In January the company said: “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.”
Primarily, investment trust board directors would have been replaced by Saba-appointed directors. And, crucially for investors, investment trust fund managers—which are appointed separately to the board directors—would also have been replaced.
• Read this: What’s Going on With UK Investment Trusts?
• Read this: Saba’s Investment Trusts Explained in Detail
Investment Trust Shareholder Power in Action?
Commenting on the voting outcomes, Richard Stone, chief executive of the Association of Investment Companies, says: “Shareholders of The European Smaller Companies Trust have resolutely voted against Saba’s proposals. With six out of seven votes completed, it’s clear that shareholders value investment trusts’ long-term approach to investing and the independent oversight provided by boards of directors.
“Of course, it’s not over yet. The Edinburgh Worldwide vote is on Valentine’s Day and shareholders need to act now to be sure of meeting platform deadlines.”
The European Smaller Companies Trust Says Investors Rejected Uncertainty
A total of 188 million shares were voted against Saba’s resolutions at The European Smaller Companies Trust general meeting, representing 62.1% of the total votes cast, or 99.5% of the shares voted excluding the shares held by Saba. The trust notes how this illustrates the almost complete absence of support for Saba’s proposals amongst other shareholders.
James Williams, chair of The European Smaller Companies Trust, says: “Today’s vote is a clear and complete rejection of Saba’s proposals and a resounding endorsement of ESCT’s proven investment strategy, the quality of its independent board and the manager’s ability to deliver outperformance.
“Saba’s failure to articulate a coherent investment strategy or provide clarity on fees and governance has been a key concern throughout this process. Shareholders have rejected uncertainty in favor of stability, performance, and a strategy that has consistently delivered returns.
“We will continue to focus on generating value for shareholders through disciplined, long-term investment in European smaller companies. The sector is attractively valued, and we are committed to executing our proven investment strategy to identify and invest in high-potential businesses. We hope that, with today’s result, Saba will choose to engage constructively in the best interests of all shareholders.”
Henderson Opportunities to Restructure
At Henderson Opportunities, 65.36% of the total votes cast were against the resolutions. Excluding the votes Saba cast in favor of its own resolutions, approximately 33.66% of the votes cast and 24.71% of the company’s total voting rights, only a further 0.98% of the votes cast and 0.72% of the company’s total voting rights, voted in favor of the resolutions.
Wendy Colquhoun, chair of Henderson Opportunities, says the result shows that shareholders do not want to be part of a Saba-managed vehicle, but instead want to be able to “retain full choice over what happens to their investment.”
The trust announced in December 2024 that it intends to offer shareholders a choice between ongoing alternative investment and/or a full cash exit at net asset value, and published details on its plans on Feb. 3.
Under the terms of the scheme, shareholders will be offered the opportunity for a tax-efficient rollover of their investment at residual NAV into Janus Henderson UK Equity Income & Growth Fund, a sub-fund of Janus Henderson UK & Europe Funds, or to receive cash—or a combination of both. For the trust to reconstruct, 75% of shareholders voting would need to vote for the resolutions by the first scheme general meeting at 9 a.m. on Feb. 19—however, this deadline might be sooner on investment platforms.
Colquhoun adds: “As part of its campaign, Saba has publicly stated its aim to deliver substantial liquidity options to all shareholders. The scheme proposed by the board is designed to achieve this. The board therefore calls on Saba to respect the decision made by the company’s shareholders at today’s meeting and support the scheme of reconstruction.”
‘Confidence’ in CQS Natural Resources Growth and Income
At CQS Natural Resources Growth and Income, over 59% of the votes cast were against Saba’s resolutions, representing approximately 40% of the issued share capital. Total votes cast represented over 68% of the issued share capital. 98.6% of votes cast by non-Saba shareholders were against the proposals.
Christopher Casey, chair of CQS Natural Resources Growth and Income, says that the strong vote against Saba’s proposals speaks loud and clear: “The majority of our shareholders have shown the confidence in the existing board and have voted to have them steer the company in the future.
“Our shareholders have voted to support the existing objectives of the company—to provide shareholders with capital growth and income from a portfolio of mining and resources stocks—and the board which oversees them. Since the appointment of our current joint fund managers in October 2015, the board has overseen the strong performance they have generated, with a 167% total return in NAV and 220% total return in share price.”
Baillie Gifford US Growth Hits Back
Total votes cast represented approximately 78.4% of the company’s total voting rights.
Excluding the shares voted by Saba, approximately 98.5% of the votes cast were against the requisitioned resolutions. Of the total votes cast, 65.6% were against all the resolutions and represented a majority of the company’s total voting rights.
The trust chair, Tom Burnet, comments: “Faced with the threat to their investment posed by Saba’s self-serving and destructive proposals, shareholders have mobilized and acted decisively to protect their investment. The result is unambiguous and conclusive.”
Keystone Positive Change Offers Options
At Keystone Positive Change, over 60% of the votes cast were against Saba’s resolutions. Excluding the votes Saba cast in favor of its own proposals—representing approximately 38.87% of the votes cast—only a further 33,845 votes, representing just 0.80% of the votes cast, were in favor.
Karen Brade, chair of Keystone Positive Change Investment Trust, says: “Now our focus returns to delivering the proposed scheme that offers an uncapped cash exit and/or a rollover into a more liquid fund with a similar global impact strategy. We are confident that this remains in the best interests of shareholders.
“The board intends to reengage with stakeholders without delay in order to implement this scheme as soon as practicable.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
