CQS Natural Resources Growth and Income (CYN) has confirmed that it has received a second notice from Saba Capital Management demanding another general meeting of shareholders. Once again, shareholders will incur the cost of defending against this attack by Saba (which CYN’s board says is without merit) that was launched without any prior engagement from the trust – which in this analyst’s view just underlines once again that Saba is not considering its fellow shareholders. Shareholders resoundingly rejected its last attack on CYN, with 98.6% of votes cast by non-Saba shareholders supporting the current board (click here to see our coverage of that).

CYN’s board says that, following the rejection of Saba’s proposals at its last requisitioned general, it is clear that Saba now understands the importance of the current strategy and investment manager to shareholders as a whole.

Saba has jumped the gun

CYN’s board has pointed out that the strategic review that it announced on 7 January 2025 already includes, among other options, the possibility of offering an open-ended alternative with the option of a full cash exit at NAV for all shareholders [QD comment: we do not think this is a good option for CYN – see further QD comment below]. As such, in calling another general meeting, Saba’s action now undermines a process that shareholders endorsed only one week ago. CYN’s board adds that it is committed to ensuring that the outcome of that strategic review is in the best interests of all shareholders [presumably rather than the benefits of one large shareholder that has backed itself into a corner by buying a large amount of stock in a fund with less liquid underlyings that it cannot exit without moving the market against itself]. CYN’s board advises shareholders that they should “take no action at this time”.

Comments from Christopher Casey, chairman of CQS Natural resources Growth and Income:

“We are disappointed to receive another requisition from Saba without any dialogue and which follows a very recent shareholder vote firmly endorsing the ongoing CYN board strategy. Not only do we already hold an annual continuation vote, but we have announced a strategic review which is advanced. Our priority remains ensuring the best outcome for all shareholders.

“The Board of CQS Natural Resources Growth and Income PLC announces that, late on Monday 10 February, the company has received a second requisition notice, on instructions from Saba Capita Management, L.P.

“The notice requires the company to convene a general meeting of shareholders, pursuant to s303 of the Companies Act 2006.

“The notice was served with no prior engagement by Saba.

“The summarised purpose of the Second Requisitioned General Meeting will be to consider, and if thought fit approve, the company taking steps effectively to provide shareholders with an option to become shareholders of an open-ended investment vehicle with a similar investment strategy as the company. The notice also indicates that the open-ended investment vehicle could be managed by Manulife | CQS Investment Management or its affiliate.

“Following the rejection of Saba’s proposals at the requisitioned general meeting on 4 February 2025 (the First Requisitioned General Meeting), at which 98.6% of votes cast by non-Saba shareholders were against the Requisitioned Resolutions, it is clear that Saba now understands the importance of the current strategy and investment manager to shareholders as a whole.

“However, the board considers that this new proposal is without merit. It wilfully disregards the board’s public commitment to holding a strategic review to consider all options for the future of the company by no later than 30 June 2025 and the existence of the annual continuation vote which has been in place since 2004 and is next due to be considered in December 2025. As far as the company is aware, Saba did not cast its votes at the last continuation vote at the AGM in December 2024.

“To reiterate the terms of the strategic review, as announced in the circular to shareholders dated 7 January 2025, the board is currently reviewing the following:

• Maintaining the current investment policy and management arrangements, given the best practice annual continuation vote, together with providing liquidity to shareholders by means of buybacks, tenders and other similar actions;
• Introducing an increased dividend, to be funded in part by capital growth;
• Pursuing further discount management mechanisms;
• Providing a full cash exit at NAV for all shareholders; and
• If a suitable partner can be identified, to negotiate terms of a combination with another investment trust or open-ended investment company that would provide an ongoing investment opportunity with a natural resources and energy focus, together with the option of a full cash exit at NAV for all shareholders.
• “It is plain to see that the scope of the Board’s strategic review already includes the possibility of offering an open-ended alternative, and the Board is committed to ensuring that the outcome of the strategic review is in the best interests of all shareholders. Saba’s action now undermines a process that shareholders endorsed only one week ago.

“The board is therefore disappointed to note that Saba’s actions in calling the Second Requisitioned General Meeting, so soon after the First Requisitioned General Meeting, are wasteful of shareholders’ funds, the company’s resources and everyone’s time.

“The directors advise shareholders to take no action at this time. A further announcement by the company will follow in due course.”

[QD comment: As noted above, Saba has effectively painted itself into a corner by amassing a large shareholding in a smaller trust whose approach includes holding a significant amount of smaller less liquid holdings that are not suited to fast liquidations, particularly at a time when commodities and natural resources are cyclically depressed – this being the type of opportunity that CYN’s managers look to take advantage of.

This ability to hold smaller less liquid but potentially more profitable positions is one of a number of key advantages of a closed end fund over an open ended one that, along with the ability to gear and having an independent board to protect shareholders interests – which crucially includes holding the manager to account, are why closed end funds tend to outperform equivalent open-ended funds over the long term. Shareholders will lose these advantages if CYN is open-ended and value will almost certainly be lost if CYN is forced to sell these smaller less liquid positions to achieve Saba’s goal of open ending the fund.

Another key consideration is that, unlike open ended funds, shareholders in CYN are able to vote at meetings of the company. From a governance perspective, the lack of shareholder democracy is one of the most significant failings of the open-ended structure that, despite repeated talk from the open-ended sector of addressing this deficit, nothing has been done about.]