Hedge fund manager Boaz Weinstein has called on shareholders of seven UK investment trusts to revamp their boards due to underperformance, proposing his firm, Saba Capital, as replacement manager, according to a report by the Financial Times.
Weinstein’s campaign focuses on Baillie Gifford US Growth, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment, European Smaller Companies, Henderson Opportunities, Herald Investment, and Keystone Positive Change trusts.
Saba, the largest shareholder in these trusts with stakes between 19% and 29%, totalling £1.5bn, has requested shareholder meetings to vote on removing existing board members and appointing new directors.
In a letter to shareholders, Weinstein criticised the current boards for failing to hold investment managers accountable for weak returns. “The trusts’ managers and their directors have failed shareholders,” he wrote.
Weinstein is reportedly proposing adding two directors to each board, including himself on one trust and Paul Kazarian, who leads Saba’s investment trust strategy, on the other six. If the changes are approved and the new boards decide to replace the fund managers, Weinstein plans to recommend Saba as the new manager.
The UK’s investment trust sector has been struggling with persistent discounts, where share prices trail the value of underlying assets. The seven targeted trusts, managed by firms such as Janus Henderson, Herald Investment Management, Manulife, and Baillie Gifford, have three-year average discounts ranging from 12% to 14.7%.
“What has caught my attention for the past three years is that the UK trust industry’s discounts have deepened as a consequence of investors losing faith in managers after shockingly poor performance in certain trusts,” Weinstein said. “At the same time, the boards have not held those managers accountable.”
Saba has requested that shareholder meetings be held by early February to allow votes on replacing the current directors with “highly qualified candidates.” The hedge fund, which manages $5.5bn in assets, aims to refocus the trusts’ strategies on acquiring other discounted trusts to increase scale and reduce costs.
Weinstein’s push follows setbacks in June when shareholders rejected his proposed board changes for several BlackRock closed-end funds, opting to retain the existing management.
Some of the targeted trusts have pushed back against Saba’s proposals.
Baillie Gifford US Growth Trust labelled the plans as “fundamentally without merit” and against shareholder interests. The European Smaller Companies Trust’s board expressed confidence in its current strategy and governance. Similarly, Edinburgh Worldwide’s board defended its strategy, noting that its discount had narrowed this year.
