Activist Intervention in Investment Trusts and Shareholder Democracy

This article reflects the opinions of its author and not necessarily those of ShareSoc.

Saba Capital may be able to force changes due to shareholder apathy and disenfranchisement

I read this article today with interest and some concern. It describes an attack by hedge fund Saba Capital on seven investment trusts. The article names:

“The Baillie Gifford US Growth trust, Edinburgh Worldwide and Keystone Positive Change, are in the firing line as well as a pair of Janus Henderson trusts, the Henderson Opportunities trust and European Smaller Companies trust.

The remaining two portfolios being targeted are CQS Natural Resources Growth & Income and Herald investment trust; Saba holds between 19-29% of the shares in each trust, making it the largest investor in each investment company.”

It appears to me that Saba is seeking to make a “fast buck” by forcing the trusts to take short term actions to reduce the discounts to asset values at which these trusts trade. These need to be reviewed on a case-by-case basis to decide the strength of Saba’s arguments, which have been opposed by analysis firm Quoted Data and broker Stifel, and whether their proposals are in the long-term interests of shareholders.

What I find particularly concerning, however, is this comment:

“According to analysts at brokerage and investment banking firm Stifel, Saba are “likely to have a strong hand in these upcoming votes” because recent equity trusts have seen around only 25-30% of shareholder turnout.”

Many individual shareholders are either unaware of general meetings or find it difficult to exercise their votes. I therefore wish to use this article to bring these vital upcoming votes to the attention of shareholders in the trusts listed. If you are not sure how to vote your shares, see this article for further information and contact your broker/platform.

Several of the boards or managers of the named trusts have since pushed back against Saba’s proposals, as detailed in this investment week article.

I do not make a recommendation on how to vote but shareholders in these trusts are recommended to read statements from Saba and from the boards of the targeted trusts and make up their own minds. Whatever you decide, do make sure to vote and ensure that your views are heard. If individual shareholders don’t vote, Saba’s vote is likely to prevail. Every vote counts!

Please support our shareholder rights campaign, which seeks to ensure that shareholders whose shares are held by nominees receive the same information and are able to vote as easily as registered shareholders.

Mark Bentley, Director, ShareSoc

DISCLOSURE: The author does not hold shares in any of the trusts mentioned.

Post Date: December 20, 2024

Amin Mohammed says:

20th December 2024 at 7:14 pm

I do hold shares in Herald Investment Trust plc.

While I will look at Saba Capital’s proposals when published, I start from a position of extreme scepticism, and have been a satisfied holder of Herald IT for about 30 years.

Mark Bentley says:

21st December 2024 at 1:20 pm

QuotedData have published their views and an open letter from Saba Capital here: https://quoteddata.com/2024/12/saba-capital-launches-campaign-to-deliver-value-to-shareholders-of-seven-u-k-investment-trusts/

30th December 2024 at 9:06 am

Further comment from QuotedData here: https://quoteddata.com/2024/12/esct-sabas-claims-of-underperformance-are-inaccurate/

They say:

“Why would the shareholders of any of Saba’s targets want to hand over control to one dominant shareholder who can then act entirely in its own interest, rather than the collective interests of all? The problem that all of these trusts face is that, because of the long-running issue of retail investors who hold their shares through the platforms tending not to vote, professional investors such as Saba get a disproportionate share of the vote. This is a concern for shareholders of all of these funds which, to varying degrees, have investments that are long-term in nature, as Saba’s proposals are very short-term and look likely to erode significant value for its long-term investors if Saba is able to drive these through. We think it is critical that these smaller shareholders get out and vote.”

Michael Pollitt says:

10th January 2025 at 11:33 am

I echo the concerns about Saba’s “cash grab” attempt. At least one platform, II (interactive investor) is highlighting the need to vote to investors in the seven trusts.
Are the other platforms doing enough or indeed anything?
I’d point a finger at Halifax Sharedealing – as I write there’s nothing on its website regarding the threat to European Smaller Co IT.
As Churchill apparently wrote on Cabinet memos – ACTION THIS DAY

Mark Bentley says:

10th January 2025 at 11:49 am

Thanks Michael

I understand that action is underway to press all platforms to notify shareholders.

I am also organising a ShareSoc webinar, as urgently as we can, in conjunction with the AIC to publicise/discuss the issues.

These events highlight the importance of our shareholder rights campaign to enfranchise all shareholders, thus enabling companies to contact their shareholders directly, irrespective of how those shares are held and to make it easy for all shareholder to vote and attend meetings.

Watch this space.

Best

Mark

- Richard Bryan says:
  
  10th January 2025 at 4:56 pm
  
  I also hold ESCT on HSDL, and received an email on Wednesday and a printed version in the post today.
  There is a reference to
  http://www.janushenderson.com/general-meeting-esct
  which contains all the docs, including one on how to vote on a number of platforms, including HSDL.

Stephen Burke says:

10th January 2025 at 3:43 pm

I hold Herald via HL, and today I got a letter directly from Herald so presumably they asked HL for the contact details. I’ve had nothing from HL itself and wouldn’t have known about the vote until today if I didn’t read Citywire. As things stand I’ll vote against, but I as for most ITs I don’t think Herald has done much to address the discount up to now. If they’d been more active in buying back unwanted shares there wouldn’t have been an overhang that allowed Saba to buy in. If Saba are rebuffed and decide to sell the discount will no doubt go out again, so that’s maybe a 15% prospective loss on the current share price.

Stephen Burke says:

10th January 2025 at 9:31 pm

In fact I got some information from HL this afternoon.

John Osborne says:

11th January 2025 at 10:27 am

I received an email from HSDL’s IWEB platform on Wed 8th asking for my voting instructions for my holding in ESCT. Unusual for them to ask for email instructions – usually it’s done through the ‘Corporate Actions’ facility on their website. (I too voted against all the resolutions.)

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Activist Intervention in Investment Trusts and Shareholder Democracy

Saba Capital may be able to force changes due to shareholder apathy and disenfranchisement

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