Saba Capital, the activist hedge fund, has opened a 5% position in SDCL Efficiency Income (SEIT), a move that could see it apply pressure to the board of the £615m renewables fund ahead of a continuation vote in 12 months’ time.
A stock exchange filing yesterday evening shows funds at Boaz Weinstein’s New York-based firm have secured just over 5% of the voting rights in the investment company languishing on a 36% discount to net asset value and offering a high 11% dividend yield.
The disclosure came hours after SDCL Efficiency Income held its annual general meeting. Next year’s will include the triennial vote on whether to continue the company that has disappointed shareholders with a 36% loss over three years.
As is often the case with Saba, most of the holding has been made through swap derivatives rather than shares.
However, SDCL Efficiency Income is an interesting potential target, being only the second alternative assets non-equity fund in which Saba has acquired a disclosed stake.
Before this investment, VPC Specialty Lending (VSL), a winding-down debt fund, was the only “alt-asset” listed fund out of 35 identified as Saba holdings by broker Deutsche Numis in July. The wide spread of positions represents a change of tactic by the activist which failed in an attempt to take over the boards of seven London-listed investment companies in January.
Saba declined to comment on its new position which comes as the activist re-invests an estimated $650m (£490m) payout it received from two BlackRock closed-end funds in the US earlier this year as well as the money it received in a tender offer at European Smaller Companies Trust (ESCT).
If Saba does push for a wind-up of the company or a return of capital, it may have to contend with General Atlantic, the New York growth investor that established a 14% position last year and bought 24.9% of its fund manager Sustainable Development Capital.
Also among leading shareholders in the investment company are wealth manager Rathbones with a 10% stake and fund manager M&G with 5%, down from 8% earlier this year.
Our view
James Carthew, head of investment company research at QuotedData, said: “The emergence of Saba on SDCL’s register (albeit via derivative trades) is interesting. It looks like a departure from its usual modus operandi, because there is no way of hedging the underlying portfolio exposures. This looks like a straight bet on SDCL’s share price going up rather than on its discount narrowing. I’m in no disagreement with it when it comes to the shares looking cheap (I own a few myself). Also, we have a potential catalyst given that the company is ‘exploring strategic options’. There is even the encouragement of the recent portfolio sale at a premium to net asset value. If this is a sign that Saba is morphing into an investor in cheap trusts instead of a ‘smash and grab’ operator, I’m all for it. Let’s see what the next step is.”
