If you’ve been keeping an eye on the investment trust world, you might have noticed a bit of drama unfolding lately. A hedge fund called Saba Capital, run by New York financier Boaz Weinstein, has been making a play for several UK-listed investment trusts. But what’s this all about, and what does it mean for investors like you? Let’s break it down.
What’s Saba up to?
Saba has been going after seven investment trusts — including names like Baillie Gifford US Growth and Keystone Positive Change — demanding big changes. It has been trying to push out the existing boards and bring in its own people, arguing that the trusts aren’t performing well enough and that their shares are trading at too much of a discount compared to the actual value of their assets (NAV).
Saba reckons it can ‘unlock value’ by offering shareholders a way to cash out closer to NAV — through things like tender offers or share buybacks. Sounds good, right? Well, not everyone’s convinced.
What’s the catch?
The idea of selling your investment at a fairer price is obviously tempting if your trust is trading at a deep discount. But here’s the issue — Saba’s not exactly been crystal clear on what happens next. Who would run these trusts after the shake-up? What’s the new investment strategy? And — perhaps most importantly — can they actually do a better job than the current teams?
There’s also the small matter of Saba’s own track record. Some of the hedge fund’s own investments haven’t exactly been knocking it out of the park. In fact, a few of them have been trading at a discount to their own NAV — exactly the problem they’re claiming to fix for others!
How have shareholders responded?
It turns out that UK investors aren’t too keen on Saba’s plans. The trusts targeted by Saba have fought back, urging shareholders to vote against their proposals. And so far, it looks like investors are siding with the existing management.
In six out of the seven trusts Saba went after, their plans were shot down, with barely 2% of independent shareholders backing them. One trust chairman even called the whole thing a ‘backdoor attempt to seize control’. Ouch.
So, what’s the takeaway?
Saba came in with a bold plan to shake up the UK investment trust sector, promising change and better value for investors. But with no clear roadmap and a less-than-stellar track record, they’ve failed to convince most shareholders.
For everyday investors, this saga is a good reminder to dig deep before getting caught up in the hype. If an activist investor comes knocking with grand promises, it’s worth asking: what’s in it for them and what’s in it for me?
For now, at least, UK investors seem to have made up their minds — and Saba is heading back to the drawing board.
