The Financial Conduct Authority has said it will consider how to protect investment company investors from activist shareholders like Saba.  

Launching a review into its shakeup of UK listing rules two years ago, the FCA said: “As part of this review, we will also conduct targeted work to assess how our rules, in the context of company law, ensure that boards support strong shareholder rights and engagement and manage conflicts of interests.”

The Association of Investment Companies (AIC) welcomed the move which comes two weeks after it called for the City watchdog to “get to grips” with the disruptive campaign of activist hedge fund Saba against investment trusts such as Edinburgh Worldwide (EWI), Herald (HRI) and Impax Environmental Markets (IEM).

Having built up stakes of 20-30% in their shares, Saba is engaged in a war of attrition, repeatedly requisitioning votes against their boards in a bid to gain control after other shareholders have defeated its attempts. Herald, a £1.2bn global technology fund battling for survival with Saba, has said it “deplores” the tactic and last month called on the FCA to intervene.

AIC chief executive Richard Stone said: “This review is an opportunity to ensure that the rules protect all shareholders’ rights where there is a minority shareholder with an outsized influence on a company.

“The rules must prevent takeovers by the back door and address potential conflicts of interest where a minority shareholder seeks to gain control,” he said.

Stone said the review should also ensure shareholders had sufficient information to vote on key issues and could hold any nominated directors up to proper scrutiny. This is based on a belief that if elected, Saba nominees would appoint the New York firm as fund manager, adopting a different strategy to which shareholders had originally bought into.

Stone urged the regulator to publish its proposals swiftly. On that the trade body is likely to be disappointed. The FCA said it had also launched the review to address concerns that its eligibility rules for listing were unduly restrictive for investment companies with concentrated portfolios.

“We plan to set out proposals in a consultation paper and to complete the work by the end of the year,” the FCA said.

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