Investment fund savers are being duped by a dubious American hedge fund, says ROS ALTMANN
- Investors must be protected against Saba’s raid, says financial expert
The recent attack on seven UK investment funds represents a flashing red warning sign for the UK markets and long-term investment fund shareholders.
This long-standing successful British financial sector is under serious threat.
Saba, a US hedge fund with no proven track record of successfully managing long-term closed-end investment portfolios across economic cycles, has launched an aggressive attack against CQS Natural Resources Growth and Income, Edinburgh Worldwide Investment, European Smaller Companies, Henderson Opportunities, Herald Investment Confidence, Keystone Positive Change and American Growth.
There doesn’t seem to be a coherent reason to target this seemingly disjointed set of companies – each owning very different types of assets.
If Saba’s predatory move succeeds, there are significant risks for ordinary investors. Regulators and policymakers must act urgently to ensure that the new consumer rights rules protect investors as intended.
It appears that Saba is taking advantage of the loopholes in the British protection of the financial markets for shareholders.
Threat: Saba has launched an aggressive offensive against seven British investment funds
As Keystone Chairman Karen Brade puts it, the hedge fund’s opportunistic tactics “seek to seize control of the board without a controlling shareholder base to pursue its own agenda.”
There is no proper protection for private shareholders or small pension investors, and many may not even know what is happening.
Saba’s proposal lacks transparency, is misleading about performance and fails every reasonable test of good governance. There is also no mention of the inevitable conflicts and risk of higher compensation.
Saba wants to dismiss the boards of directors and replace the directors of each company with its own selected individuals, who may represent Saba’s interests rather than all shareholders.
Saba also wants to take over the role of investment manager, but absolutely no coherent investment strategy is proposed.
Investors who were attracted to the long-term strategy of each of these different mutual funds have no guarantee that they will continue to be exposed to these types of assets.
Other shareholders can block Saba’s plans by voting against, at least in theory. But if the other shareholders do not know what is happening and are not encouraged to vote, the proposals will pass as most retail platforms fail to warn their customers directly.
Current rules require shareholders to vote against such actions to stop them, rather than requiring an affirmative vote in favor to approve significant changes. This is a clear gap in consumer protection and urgent reforms are needed to prevent small shareholders from being unfairly punished.
Regulators should review voting processes and strengthen shareholder protections, especially in situations where a large institution dominates the register.
It is certainly unacceptable for a minority shareholder to take control of these funds without considering the costs and consequences for others.
All shareholders of these seven investment funds must carefully review and vote on the proposals.
If this hedge fund succeeds, I fear other opportunists
institutions could follow suit, which would further damage the UK’s leading investment trust sector.
The closed-ended fund is ideal for investing in illiquid growth assets and long-term infrastructure portfolios managed by experts.
All investors must be given a fair opportunity to protect their own interests.
DIY INVESTMENT PLATFORMS
A. J. Bell
A. J. Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund trading and investment ideas
interactive investor
interactive investor
Invest for a fixed amount from € 4.99 per month
Sax
Sax
Get £200 back in trading fees
Trade 212
Trade 212
Free trading and no account fees
Affiliate links: If you purchase a product, This is Money may earn a commission. These deals have been chosen by our editors because we believe they are worth highlighting. This does not affect our editorial independence.