Boaz Weinstein, head of New York-based hedge fund Saba Capital, pulled no punches when discussing the boards of investment trusts in his recent webcast. They were “obstinate”, a “boys’ club”, protecting their own interests, “part of an ecosystem of greed taking fees away from the pensioners.” Their actions verged on “almost malpractice”, distributing misinformation to shareholders about Saba’s performance, intentions and fee structure.
In Weinstein’s view, he, rather than the boards of the seven investment trusts currently the subject of his focused attention, is looking after shareholder interests. “My interests are your interests”, he said to shareholders, “investors are banking on Saba to be able to give them an exit on their full position.”
Worse, he suggests, boards have taken no action. “We’ve been in these funds for two or three years. They saw us in there, they knew we had been aggressive with managers who didn’t take care of their shareholders. They did nothing. Only in the last three or four months when we started to get enormous stakes, did the boards start to take action.”
Boards, unsurprisingly, do not recognise this characterisation. They suggest that they had no reason to assume that Weinstein would take his current course of action – and indeed, some were led to believe otherwise. Tom Burnet, non-executive chairman of the Baillie Gifford US Growth Trust went to New York to meet Saba in November: “We engage routinely with all of our largest shareholders for feedback and Saba are no different. Certainly nothing arose from our recent meeting with them that led us to expect Saba to take this self-serving and destructive course of action. As there was no negative feedback or demand for a liquidity event, we agreed to meet again in six months or so, so receiving the requisition was extremely disappointing.”
Other boards report similar experiences. Attempts to engage were rebuffed, Weinstein did not attend early AGMs, or vote. The Keystone board tried to engage him in the company’s reconstruction scheme, having bought back 5% of the shares in 2024.
Chair Karen Brade said: “Following Saba’s request in August 2024 for a cash exit by the first quarter of 2025, we put together a scheme, announced by the board in September. Saba said it ‘liked the direction of travel, but wanted more detail.’ We discussed the problem of the private companies in the trust in depth.” But after that, says Brade, Saba refused to engage. They published the scheme and there was no response. Then came news of the requisition: “To say I was gobsmacked was an understatement,” says Brade. She found his answers vague and cannot understand why the partial exit proposed by Saba is preferable to the full exit proposed under the scheme.
Chris Casey, chair of CQS Natural Resources Growth and Income, also met Weinstein. “He didn’t come to the AGM, didn’t vote, didn’t make any demands. We met on 20 November. Nothing in the meeting suggested they were about to take action or wanted to change the investment mandate. There was zero constructive engagement.”
Boards are sceptical about his promise to be on the side of “mom and pop” shareholders. It is not clear that there is a groundswell of discontented shareholders looking for an exit. In fact, in the case of Herald, Weinstein admits that manager Katie Potts is ‘beloved’ by many of her shareholders.
The details of the potential alternative remain unclear. Saba has outlined plans for restructuring the management of the boards, and managing the assets themselves, but has not outlined the proposed strategy in depth: “We might not merge all of them, the ones with a lot of SpaceX maybe have a different path. Maybe they do not. We are going to do the best thing for us and you,” said Weinstein. The proposal appears to be some kind of fund of investment trusts similar to the group’s US-listed ETF.
Casey says: “If you’re pushing for change, it is reasonable to have the details of the proposal. Then people can sign up for it. People have bought into our trust because it invests in natural resources. If it were suddenly to invest in something completely different, it might be a good idea, but it’s not what they signed up for.”
Brade says: “If I thought there was a really compelling offering, of course I would show it to my shareholders. I have already done this a number of times. Then it can be stress tested in the market.” Their view is that investors don’t have enough information to be able to make an informed decision, and Saba is relying on investor inertia to take over the assets.
Equally, there is a question over why Saba is not simply mounting a takeover. Casey says: “We understand if you own more than 50% you have a right to control a trust, subject to the protection of minority investors’ interests.” If shareholders own more than 30%+, they need to make a bid, but Saba has kept its stake just below that.
The boards are now banging on doors, sending out letters, engaging with the press, encouraging people to vote against the proposals. Independent proxy advisers ISS and Glass Lewis have also recommended voting against the proposals for Herald, which has the first vote on 22 January. The boards recognise they have a fight ahead, but there is a strong sense amongst them that they can win.
However, another problem lies ahead even if they win. Burnet says: “As you would expect, we are currently carefully planning ahead for the next stage. We will be taking the interests of all shareholders into account as we evaluate how to manage Saba’s holding.” Casey says they also have this problem in their sights. “We know we need to fight to protect value for all shareholders.”
The worry is that the whole episode is hugely disruptive for existing shareholders. Fund managers have had to halt new investments while the episode is resolved, boards have committed time and money to dealing with the issue. Shareholders may appreciate the narrowing of discounts (though it is worth noting that many may have bought in at a discount), but at what long-term cost?
For many of these trusts, there is no equivalent in the market. If they’re gone, they’re gone. Taking out Herald, for example, would remove a vital source of funding for early stage businesses in the UK just as the government is trying to create an AI ecosystem. If investors liked the exposure they brought, they won’t be able to replicate it. This may be the uncomfortable legacy of Saba’s intervention.
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