The investment trust sector will never be the same after Saba’s intervention, says MIKE SHEEN
Boaz Weinstein criticized the ‘jingoism’ of the British financial press and City figures earlier this week as he launched an unusual but very consistent charm offensive.
The CEO of hedge fund Saba Capital was hoping to win over seven different groups of investment fund shareholders ahead of a series of crucial votes that will ultimately determine the future of the more than 150-year-old British sector.
The Saba bombing in December, months in the making, has sparked outrage in the investment fund industry after boards and management were caught off guard and suddenly found themselves fighting for their jobs.
Commentators have portrayed Weinstein as ‘an American who takes pounds and brings them back to the US’. behavior.
Both sides can be forgiven for being somewhat melodramatic, but there is a lot at stake.
The Saba city critique paints a picture of an existential crisis facing the investment trust sector after several years of battling poor performance and discounts to net asset value, which expanded in October 2023 to levels not seen since the 2008 collapse.
Because investment trusts are so-called closed-ended, with a limited number of shares trading on the stock exchange, their share price can fall to a discount to the sum of what they own, known as their intrinsic value.
Charm offensive: Boaz Weinstein outlined his strategy as Saba prepares for seven crunch votes
Saba claims that it is a ‘white knight’ who comes to the rescue of beleaguered small investors in investment funds. Unsurprisingly, the managers and boards running the trusts disagree.
The CEO of Janus Henderson, which runs two of the trusts targeted by Saba, Ali Dibadj this week reportedly warned an audience of professional investors that an “inconsistently small” and “very aggressive” hedge fund was “gambling on complacency” to make a ‘inconsistently small’ and ‘very aggressive’ hedge fund. seize property.
This complacency could be a useful weapon for Saba. Figures from Peel Hunt show that shareholder vote turnout is very low, with an average of just 35 percent of share votes cast in the UK market, suggesting that Saba’s huge stake in each trust could be enough to achieve his wishes .

The date on which Saba’s proposals are submitted to the shareholders for a vote at each investment company
But the criticism of Saba has not been unfounded.
Saba accepts that the fees are higher, and to most it seems clear that its bold takeover plans are motivated by self-interest and not by some grand altruistic crusade to boost the UK market – this is a hedge fund after all.
It also appears to lack the Warren Buffett-like track record needed to justify accusations that it is far more capable of delivering returns that call for widespread incompetence on the part of its boards and the management.
Governance could be the biggest red flag. Saba’s plan to replace the entire board with one of its employees and only one nominee associated with the hedge fund will certainly raise eyebrows at the Financial Conduct Authority.
Analysts at Investec say Saba’s proposals show “a clear lack of understanding, bordering on disregard” of the sector’s corporate governance code, and could easily breach the stock market’s listing rules and even diversity standards and inclusion objectives of the FCA.
Board members I have spoken with have expressed disbelief at the way Saba has behaved both publicly and privately.
But investors may not be the only ones guilty of complacency.
Fund bosses have pointed to regulatory pressures, fewer analysts covering the sector and higher government bond yields as driving forces behind their recent woes.
Critics, meanwhile, suggest that boards and management have been slow to adapt to a world of non-zero interest rates, and need to be more proactive in addressing discounts when they arise.
Saba’s plan is not that radical
Don’t fear, says Weinstein, Saba is the ‘white knight’ of the UK market, here to save us from incompetence and poor returns. It will bring these trusts together and create a vehicle to buy into other undervalued trusts.
But in some ways there’s nothing special about Saba’s approach.
‘Trust-of-trust’ vehicles have been around for a while – take Peter Hewitt’s CT Global Managed Portfolio Trust, for example.
The shares are down about 7 percent over the past three years, reflecting the problems facing the broader market. Although the trust has less firepower than Saba can offer, it has never claimed to be the savior of the British market.
Likewise, buying trusts cheaply because you think a high discount will shrink is hardly a revolutionary strategy.
Saba insists that it will simply encourage the trusts in which it buys shares to engage in ‘shareholder-friendly’ activities, such as share buybacks, at limited discounts, thus benefiting not only themselves, but all UK investment fund investors – thanks Boaz!
This is now an activist market
Some mutual funds have already used buybacks in the past three years in their attempts to combat discounts, with mixed results.
Saba points to the ‘3.9 billion pounds’ it plans to put into UK assets after merging the funds – apparently a much-needed chunk of firepower to revive the discount-laden funds.
But that figure is dependent on the hedge fund getting its way in seven separate shareholder votes, investors remaining invested and no loss of value occurring if non-UK holdings are sold.
Saba may not even merge all seven trusts, but no decision has been made on that yet. Weinstein assures us that this decision is being carefully considered.
What happens next for investment trusts?
The decisions of Saba, shareholders and regulators will be closely watched in the coming weeks, but change is now inevitable for the investment trust sector.
Saba has stakes in a total of 24 London-listed trusts, and no doubt plans to take action elsewhere later – the upcoming votes, scheduled from January 22 to February 5, are unlikely to be the last.
Investment trusts will have to respond, whether they are targeted by Saba or not, because the rules of the game have changed. This is now an activist market.
It’s easier said than done, but they will have to find a way to be more active in discounting and increasing shareholder returns.
In this environment, other major players will need to enter the market, possibly with their own ideas for the future of the sector.
Who knows, we simple do-it-yourself investors may become less complacent and embrace our very small role as ‘asset owners’.
Regulators, in turn, may have to reassess the rulebook.
Whether all this will ultimately benefit the UK market and its investors remains to be seen, but change is coming.
The Rubicon has been crossed, the die has been cast and the world – at least for mutual funds – can never be the same again.
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