Saba lures Herald shareholders with a cash exit offer
The hedge fund, which is trying to take control of seven London-listed funds, is hoping to win over Herald Investment Trust investors with the offer of a cash exit.
Saba Capital is seeking to overhaul the boards of seven trusts in which it has built up substantial stakes, including Herald, and impose itself as an investment manager.
The group has accused the respective boards and management of failing to adequately address performance-related issues and persistent discounts to net asset value.
It will put its proposals to shareholders in a series of votes scheduled from January 22 to February 5.
Herald, along with its six affected London-listed peers, has already urged shareholders to reject Saba’s “opportunistic” approach, accusing the hedge fund of self-interest at the expense of other investors.
They further point out that performance has recently improved and discounts have decreased significantly.
Saba said on Thursday that, if the January 22 proposals were approved by Herald shareholders, she would encourage the trust’s new “independent” board to offer them a 100 percent cash exit at 99 percent of the net asset value of the trust.
In a statement it said: ‘Saba expects that shareholders will have the option to sell their entire position at 99 percent of net asset value if they wish.
‘Additionally, Saba would support further changes so that this cash exit would be overseen by a fully independent board and not expected to happen for at least a year afterwards, so that the value of the portfolio is maximised.’
Seven London-listed trusts will face a crucial vote over the attempted takeover of Saba
The offer stands out against Saba’s rejection of a nearly identical plan that was to be implemented by Keystone’s board before the hedge fund’s intervention.
Saba said the commitment comes “in response to shareholder feedback” and provides “certainty on the plan to deliver long-awaited liquidity to all shareholders, in addition to the opportunity for greater long-term returns under a new investment strategy and manager.”
In response, Herald’s board said: ‘Saba does not intend to offer 99 percent of the value of the current net asset value.
“Instead, Saba is proposing an exit after ‘at least one year,’ during which open-ended period significant value could be lost from the underlying portfolio in anticipation of or as a result of Saba’s known propensity to sell.”
Chairman Andrew Joy added: ‘In direct contrast to Saba’s promise of the ‘opportunity for greater long-term returns under a new investment strategy’, the Herald Board does not believe Saba’s long-term track record supports this.
‘The Board of Directors reiterates its belief that Saba has materially underperformed compared to Herald since Saba began investing in 2009. Since that date, Herald has achieved a total return of more than 865 percent.”
Showdown: When each trust will hold its crucial vote
Herald and the other affected funds have criticized the lack of a clear plan after the Saba vote, should it win over shareholders.
Saba has announced that CEO Boaz Weinstein will unveil the group’s plans next week ‘to deliver shareholder value across all seven trusts’.
FundCalibre director Darius McDermott joined other City figures on Thursday in urging investors from all seven trusts to reject Saba’s proposals.
He warned that Saba “poses a threat to the long-standing independence that protects your investments,” and that shareholders should “expect higher fees, a change in strategy and potential exposure to riskier assets” if the hedge fund gets its way.
McDermott added: “The investment trust industry, a foundation of stability and independence, is facing an unprecedented challenge. Don’t let it be reformed to serve short-term interests.
‘Saba aims to use one trust to acquire distressed assets, a strategy that has had mixed results in the US. It’s about their gain, not yours.’
McDermott further warned that a Saba win would “likely be the result of inaction from investors,” suggesting that the proportion of retail investors versus large institutional shareholders in each trust is likely to play a role in the outcome.
He said: ‘If shareholders do nothing they could end up with something completely different and more expensive.
‘Contact your platform, vote and attend the meetings. Protect your investments before it’s too late. The changes on Saba could lead to higher costs and a shift from the original purpose of these trusts.
‘Shareholders must unite and vote to secure their future. It is also the job of platforms to warn their shareholders and outline the possible outcomes and their voting rights. Inaction is our greatest enemy.’
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