A high-profile campaign by US activist hedge fund Saba Capital to overhaul seven British investment trusts has been described as a “massive wake-up call” for the £266bn industry, which critics say has grown “complacent”, according to a report by the Financial Times.
Experts believe the hedge fund’s failed attempt to force change at the trusts could now drive greater competitiveness in the 150-year-old sector.
Over the past two weeks, shareholders in six of the targeted trusts voted to retain their existing boards, rejecting Saba’s attempts to replace them. The final trust, Edinburgh Worldwide Investment, will hold its vote next Friday. While Saba, led by hedge fund manager Boaz Weinstein, has largely failed in its efforts, its bold campaign has rattled the industry.
The report quotes Ben Yearsley, Director at consultancy Fairview Investing, as saying: “The sector had become far too complacent. With captive fee income, there was little incentive to keep shareholders happy. This has been a good kick up the behind.”
Saba’s campaign focused on underperforming trusts that traded at persistent discounts to the value of their underlying assets. When Weinstein announced his intentions in December, the seven trusts had been trading at discounts averaging 12-14.7% over the past three years.
The trusts targeted by Saba included Baillie Gifford US Growth, CQS Natural Resources Growth & Income, European Smaller Companies, Henderson Opportunities, Herald Investment, and Keystone Positive Change.
Weinstein argued that the boards of these trusts had failed to hold their investment managers accountable for poor performance, leading to prolonged underperformance and widening discounts.
“This has highlighted the value of investment trusts while shaking the industry awake,” said Darius McDermott, Managing Director of fund rating service FundCalibre. “I’m hopeful this will improve the sector, putting shareholders in a better position. Boards should now pay closer attention to capital allocation.”
Richard Stone, Chief Executive of the Association of Investment Companies, meanwhile, acknowledged that discounts in the sector had remained at extended levels for an unprecedented period. However, he noted an increase in proactive measures.
“Many boards are reviewing their strategies, which has already led to record levels of share buybacks and mergers,” Stone said. “This trend is continuing as boards seek to address shareholder concerns and improve performance.”
Saba Capital declined to comment on the results of its campaign.
