ShareSoc Warns of Serious Governance Issues in Saba Capital’s Proposals

ShareSoc, the UK’s premier organisation for individual investors, has serious concerns about the governance risks posed by Saba’s proposals, which seek to replace independent boards with its own non-independent representatives in all 7 trusts, award itself the investment management mandates, combine the trusts into a larger vehicle and use that vehicle to acquire further trusts at a discount.

ShareSoc acknowledges performance concerns raised by Saba Capital Management against some, but not all, of the seven investment trusts targeted by Saba.

However, ShareSoc notes that one person, Paul Kazarian, a Saba employee, has been proposed as director for 6 of the trusts in contravention of existing governance guidelines.

The organisation also notes that the plan to appoint Saba as fund manager to all 7 trusts creates significant conflicts of interest and involves fundamental changes to investment strategy. The Listing rules require that boards act independently of the asset manager.

A further key issue complicating this situation is the UK’s nominee account system, which significantly increases the effective voting power of activist minority shareholders such as Saba and undermines the ability of the affected trusts to inform and to engage with their shareholders.

Mark Northway, ShareSoc Director, commented:

“The Saba action is certainly a wake-up call for investment trust boards. Presiding over a combination of concurrent discount-to-NAV and underperformance creates shareholder frustration and invites attention from external activists. More attention needs to be paid to near-NAV liquidity provision.

But Saba Capital’s proposals go far beyond typical activist arbitrage, such as the Alliance Trust action by Elliott, in that they envisage a lack of independent governance and an incestuous and self-interested appropriation of the trusts’ investment mandates.

Handing governance and effective control over to an opportunistic activist with its own agenda and investment strategy sets a dangerous precedent. The proposals, as they stand, are an affront to good governance. If implemented, they will leave shareholders at the mercy of a minority investor without the fundamental protections they expected.

The nominee system is not just an obstacle to fair governance; it’s an enabler for opportunists like Saba to exploit the resulting low levels of shareholder engagement. This attack underlines the urgent need for reform.

Activists and opportunists thrive where shareholder engagement falters or even fails, and it’s high time to ensure the system works for all investors.”

Voting Recommendation

ShareSoc strongly opposes Saba’s proposals to replace trust boards with its own representatives. Independent boards are critical for holding investment managers accountable and acting in ALL shareholders’ best interests.

ShareSoc urges shareholders to participate in the upcoming Trust votes, to protect governance standards.

Corporate Governance and the UK’s Flawed Nominee Shareholding System

Most private investor’s shares are held through nominee companies associated with platforms like Hargreaves Lansdown and AJ Bell. Under this arrangement, investors enjoy a beneficial interest, but importantly they are not the legal owners of the shares, nor are they formally members of the company.

ShareSoc highlights three key ways the nominee system directly impacts the dynamics of Saba’s campaign:

  1. Communication Barriers
    Nominee intermediaries prevent trust boards from directly contacting all shareholders, making it difficult to share critical information or encourage participation in important votes. Communication of corporate actions and proposed resolutions by nominees is not compulsory.
  2. Lower Shareholder Engagement
    Listed companies don’t know who beneficially owns their shares, and do not have any reliable means of engaging with those beneficial owners. This leads to shareholder apathy and lower voter turnout, increasing the effective voting power of activist investors and making it easier for activists to win with only a minority stake.
  3. Complex Voting Processes
    Private investors in nominee accounts often face cumbersome voting procedures, discouraging participation. Again, this tilts the playing field in favour of activists with concentrated stakes.

ShareSoc calls on policymakers to prioritise reforming the nominee system. Fixing these systemic issues would:

  • Empower private investors to vote and engage more easily.
  • Allow Trust boards to communicate directly with shareholders.
  • Strengthen shareholder democracy and improve Investment Trust governance.

ShareSoc also suggests that additional mandatory measures should be introduced to ensure boards act independently of dominant shareholders whose commercial interests may conflict with the interests of shareholders as a whole.

Webinar

ShareSoc will host an independent online event on 24th January, to allow interested parties and investors in the seven affected Trusts to discuss the issues and circumstances surrounding Saba Capital’s proposals.  Register to attend HERE.

About ShareSoc 

ShareSoc (The UK Individual Shareholders Society) is the leading not-for-profit organisation dedicated to representing and supporting UK private investors. Through advocacy, education, and community-building, ShareSoc works to enhance the rights and opportunities of all individual investors.

The organisation campaigns for better corporate governance, provides resources to help investors make informed decisions, and offers a platform for connecting with like-minded investors. ShareSoc’s mission is to ensure that the voice of the individual investor is heard and respected in the UK’s financial markets.

Post Date: January 16, 2025

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