US hedge fund launches activist offensive against UK investment trusts
US hedge fund manager Saba Capital has launched a campaign to oust the boards of seven top UK investment trusts today after amassing stakes in the firms over the past year.
In an open letter to the companies today, the activist investor said it was triggering shareholder votes to “elect new directors with a concrete plan to deliver shareholder value” for three Baillie Gifford trusts, two Janus Henderson trusts, CQS Natural Resources Growth & Income and Herald trust.
“We believe the current boards of directors and investment managers have failed to perform versus their benchmarks and have, therefore, required Saba’s investment to narrow the deep trading discounts to net asset value and deliver returns for shareholders,” the hedge fund wrote.
Saba holds between a 19 to 29 per cent stake in each of the companies, making them the largest investor in every trust being targeted.
In the letter, the firm said it would be calling meetings to “provide shareholders the opportunity to vote on resolutions to remove the trusts’ existing directors and appoint highly qualified directors to replace them”.
While Saba’s stake in the trusts has been known for some time, today marks the launch of its formal campaign against the boards.
The hedge fund has named its campaign ‘mind the gap‘ due to the disparity between the trusts’ share prices and the value of their underlying assets.
Saba also noted that over the last three years, all but one of the trusts’ share prices have underperformed their benchmarks.
One of the trusts, the Baillie Gifford US Growth Trust, has fallen more than 50 per cent below its benchmark over the last three years. In August, investment trust expert James Carthew warned that investor patience “will wear thin” if performance didn’t improve.
At the meetings, which the hedge fund said should take place by February, Saba wants shareholders to kick out the current boards and replace them with their hand-picked candidates.
Saba’s candidates for the trust boards include their employees Boaz Weinstein and Paul Kazarian, former hedge fund manager Doug Hirsch, and former Goldman Sachs Asia COO Jassen Trenkow.
The seven trusts being targeted are: Baillie Gifford US Growth Trust, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment Trust, European Smaller Companies Trust, Henderson Opportunities Trust, Herald Investment Trust and Keystone Positive Change Investment Trust.
| Trust | Three-year share discount to underlying assets | Three-year performance versus benchmark | Saba Capital stake |
| Baillie Gifford US Growth trust | -13.8 per cent | -52.8 per cent | 25.2 per cent |
| Keystone Positive Change investment trust | -12 per cent | -47 per cent | 29.2 per cent |
| Edinburgh Worldwide investment trust | -12.9 per cent | -43.1 per cent | 21.1 per cent |
| CQS Natural Resources Growth & Income | -14 per cent | -30 per cent | 25.1 per cent |
| Henderson Opportunities trust | -13.4 per cent | -26.9 per cent | 23.4 per cent |
| Herald investment trust | -14.7 per cent | -7.4 per cent | 18.6 per cent |
| European Smaller Companies trust | -13.5 per cent | 11 per cent | 29.1 per cent |