Saba Capital Management, led by Weinstein, plans to influence seven investment funds amid concerns over sector underperformance, disputed by the funds. Shareholders recently rejected Saba’s board replacement proposal for Herald Investment Trust. Upcoming votes will further determine the direction of funds like Baillie Gifford U.S. Growth Trust. Weinstein seeks to improve performance through mergers and buybacks, while the trusts defend their long-term results and work to address persistent discounts impacting share values.
Saba Capital Management’s Ambitious Plans
Saba Capital Management, the firm led by Weinstein, is gearing up to take charge of seven investment funds in which it holds substantial stakes. The firm has voiced concerns about the widespread underperformance plaguing this 160-year-old sector, a claim that the funds themselves vehemently dispute. In a significant move, shareholders of Herald Investment Trust, the largest among these funds, recently voted against Saba’s efforts to replace its board.
Upcoming Votes and Sector Pressure
The battle is far from over, as the next votes will occur for Baillie Gifford U.S. Growth Trust and Keystone Positive Change Investment Trust on Monday, followed by three more votes on Tuesday and Wednesday. Daniel Lockyer, a senior fund manager at Hawksmoor Investment Management, emphasized that boards and managers must pay attention to the situation. He cautioned that any fund with a liquid portfolio trading at a considerable discount without a strategy to manage that discount is at risk.
Investment funds serve as publicly traded entities, allowing individuals to purchase shares for exposure to various assets, including listed stocks and less accessible private companies. Ideally, the shares should trade close to their net asset value (NAV). However, a decline in popularity can lead to significant discrepancies between the share price and NAV, complicating withdrawals for investors. Regardless of the outcome, Saba’s actions could intensify pressure on trusts to enhance their performance. Sonia Falconieri, a finance professor at Bayes Business School, remarked that Saba’s campaign has set a significant precedent, signaling that both performance and governance will face increased scrutiny.
In an analysis of recent accounts from the seven targeted trusts, a total deficit of £350 million was identified between the share values at the time of filing and the book value of £3.9 billion in assets. Although these figures are just a snapshot, they indicate persistent discounts. The trusts assert that they have provided respectable long-term performance and are actively working to mitigate discounts, labeling Saba’s campaign as self-serving.
Weinstein aims to elevate performance through strategies such as merging underperforming funds, conducting share buybacks, and investing in private assets rather than focusing solely on large publicly traded companies. In a pre-vote interview, Weinstein mentioned that he is ready for a prolonged effort, especially after receiving new investments from at least two institutional investors since his campaign’s announcement late last year. Meanwhile, the trusts are striving to gain support from their shareholders. Jonathan Simpson-Dent, chairman of Edinburgh Worldwide Investment Trust, acknowledges the rising discounts but assures that the sector is already making strides to address this issue.