Update: Baillie Gifford US Growth Trust (USA) has received a requisition notice from Saba Capital Management, the activist hedge fund holding 29% of its shares.
New York-based Saba has put forward Jason Chen, Thomas H McGlade and James Waterlow as candidates for election to the £900m investment trust’s board at its annual general meeting in October.
It said it would “urge” them to offer USA shareholders a chance to withdraw all their money at close to net asset value (NAV), saying the trust’s returns to shareholders over five years had underperformed the S&P 500 index by 88.4% over five years, or by 79.1% when looking at the underlying investments.
“During that time, USA shareholders have suffered under a board that has repeatedly put Baillie Gifford’s interests first,” Saba said referring to a row over the fund manager’s decision last year to reduce its large stake in SpaceX ahead of big hikes in the valuation.
“If our nominees are elected, we would urge them to offer all USA shareholders a 100% cash exit at or near NAV – providing a long-overdue liquidity event similar to those we have helped secure for shareholders across other UK investment trusts.”
This continues Saba’s campaign against USA, having lost in a bid to seize control of the board in February last year and unexpectedly voting against the re-election of its directors at last year’s AGM without nominating candidates. It also blocked a proposed merger with Baillie Gifford managed Edinburgh Worldwide (EWI), where it did gain control with the election of its candidates in April.
“The board recommends that shareholders take no action at this time and await a further announcement from the company in due course,” USA said in a statement.
USA shares eased slightly to 327.3p in early trading, having closed Friday at a 7% discount to NAV. After a pummelling in the 2022 growth crash, they have bounced back under fund managers Gary Robinson and Kirsty Gibson with a 123% total over the past three years. The performance has been helped by the current 13.6% stake in SpaceX and positions in other AI beneficiaries such as Anthropic, Nvidia, Databricks and Meta.
Chen was among four Saba nominees elected to the board of Impax Environmental Markets (IEM) when it won control in June. McGlade, a hedge fund executive, has previously been nominated by Saba in its campaigns against US closed-end funds, including those of BlackRock. Waterlow, a former partner at broker Singer Capital Markets, joined Saba in February as its UK managing director.
Saba is in a strong position as it only requires 50% of votes at the AGM to push through the ordinary resolutions for its nominees. If its three candidates replace the current four-strong board chaired by Tom Burnet, they are likely to replace Baillie Gifford with Saba as fund manager, as occurred over the summer with Impax Environmental Markets.
Baillie Gifford is likely to resist the second loss of an investment trust mandate. It will look to rally the support of wealth managers and fund managers such as Brewin Dolphin, JP Morgan and RBC Europe as well as private investors.
Earlier this month, the Financial Conduct Authority closed a consultation on a proposal to prevent large shareholders participating on votes to appoint them as fund managers. A rule change could follow by the end of the year.
Our view
Matthew Read, senior analyst at QuotedData, said: “This appears to be more of the same from Saba, with no new ideas on the table. In a repeat of its previous tactics, it seems intent on repeatedly requisitioning USA in the hope that other shareholders eventually tire of the process, allowing it to gain control of the board through a war of attrition. The FCA has proposed changes that, if enacted, should make it harder for large shareholders to use the system in this way to the potential detriment of smaller investors. However, we are not there yet. As before, it is crucial that USA shareholders inform themselves and turn out to vote to protect their investment.”
