By Najiyya Budaly, Law360, 21 January 2025:
Investment trusts on the London stock market should work at persuading retail investors that they have viable plans to increase value for shareholders if they want to defend against activist shareholders moving in to seize control, lawyers say.
Analysts in the sector are watching after moves by a hedge fund in December highlighted a vulnerability that can make investment trusts easy targets for corporate raiders.
Saba Capital Management LP took aim before Christmas at seven investment trusts listed on the London Stock Exchange with scathing performance reviews. The U.S. hedge fund is now vying for seats on their boards and seeking to take on the role of investment manager.
Poor performance at a listed closed-ended fund is particularly visible to the market if its shares are trading at a discount to its net asset value, or NAV, which means that the share price is lower than the published value of its assets. Exiting investors get the share price, rather than the NAV — meaning they walk away with less than the value of the assets held by the fund.
And, on Wednesday, shareholders in the funds will be able to take action. They will begin voting at general meetings on whether they want to remove the existing boards of their funds, with resolutions requiring at least 50% of the votes cast.
Lawyers and market commentators say that companies dragged into proxy fights should not underestimate the importance of having a dialogue with their small shareholders to help organize resistance to activists moving in to take over.
Market maker Winterflood Securities estimates that individual shareholders investing through platforms account for approximately 30% of the register of shareholders of one of the funds, Keystone Positive Change.
“I can’t think of another scenario where retail investor votes have been so important,” James Carthew, head of investment companies at QuotedData, which writes sponsored research for trusts, said.
“I think a lot of investors trust that the right thing is going to happen, but there’s a danger that a big professional investor shareholder that wants to impose its own agenda can rely on the little investor not voting to get their way,” he continued
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