By Emma Wallis, News editor, Trustnet, 18 December 2024:
Saba Capital Management has published a letter proposing dramatic changes to seven investment trusts in which it is the largest shareholder.
Its targets include three trusts managed by Baillie Gifford (Edinburgh Worldwide, Keystone Positive Change and Baillie Gifford US Growth) and two from Janus Henderson Investors (European Smaller Companies and Henderson Opportunities), alongside CQS Natural Resources Growth & Income and Herald.
Saba has requested that the trusts convene general meetings by February 2025 to offer shareholders the chance to vote out their boards and appoint new directors.
If elected, the new directors would consider a range of options, including: replacing the trusts’ investment managers with Saba; changing their investment mandates to purchasing discounted trusts; merging with other trusts to achieve economies of scale; and liquidity events such as tender offers and share buybacks..
Matthew Read, senior analyst at QuotedData, said there is an “obvious flaw” in Saba’s strategy to quickly deliver substantial liquidity and long-term returns. “Those two are often mutually incompatible, particularly for some of the funds it is targeting where the underlying holdings are less liquid,” he explained.
“Herald is the obvious example as it is a big fund with a huge tail of small illiquid positions that trade by appointment that could take years to sell off and you would likely move the market against you in many of these, particularly once the market spots you as a forced seller.
“The call for substantial liquidity also ignores the unquoted positions held by trusts such as Edinburgh Worldwide and Baillie Gifford US Growth. These are long-term investments and, for some, the pay outs can be big as has recently been illustrated by the spectacular success of SpaceX.”..
“This and the other challenges we highlighted above have long made us feel that Saba doesn’t really understand some of the funds that it is invested in.”
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