- Activist investor Saba Capital Management has written to shareholders at seven investment trusts to request an overhaul of their board and investment managers, calling for a general meeting and vote for shareholders
- If successful, Saba intends to merge the trusts and replace those ousted with its own directors and investment strategy
- Investors will need to consider whether they want to stick with the current strategy and team at each trust or vote for change by backing Saba
Paul Angell, head of investment research at AJ Bell, comments:
“Investors will need to consider their options carefully after today’s bombshell letter from Saba Capital Management to the shareholders of seven investment companies, inclusive of high-profile names such as Baillie Gifford US Growth, Edinburgh Worldwide, European Smaller Companies Trust and Herald.
“In short, as major shareholders in seven investment trusts, Saba are calling for general meetings at each investment company to oust the existing boards and overhaul their respective investment managers and mandates. From here the newly appointed directors will look to merge the trusts into one mega trust managed by Saba and focus on purchasing further discounted trusts and or merging trusts in an attempt to realise scale benefits.
“Saba have centred their case for intervention around the poor performance of the seven trusts, as well as their respective board’s inability to control discounts. When it comes to the former, Saba have been somewhat selective in highlighting three-year relative returns, with most of the trusts performing better on a longer-term basis. Additionally, with regards to discounts, the criticism seems less pertinent at present given the bulk of the trusts are now trading at or above their net asset values (NAVs). Recent discount narrowing has been helped by Saba’s growing ownership stake but also, in the case of Baillie Gifford US Growth and Edinburgh Worldwide, the expectations around the ongoing profitability and valuation of Elon Musk’s SpaceX ahead of Donald Trump’s second stint in the White House.
“At the upcoming meetings, investors will need to think hard about whether they want to jettison the existing management teams and their investment process in favour of an activist strategy run by Saba. Any votes in favour will need to be clear-eyed to the upcoming overhaul and departure from the existing investment rationale within the trusts.
“Saba have also offered to provide tender offers on the trusts, should their new directors be appointed. Given the relative symmetry between share prices and NAVs, these offers will be of limited additional use for investors wanting to exit close to NAV, although they will provide a useful exit opportunity for those who don’t want to remain invested under Saba’s activist investment strategy in the instance that their ambitions are realised.”