Update: Saba Capital has told Edinburgh Worldwide (EWI) shareholders for the first time that it wants to replace Baillie Gifford as fund manager in a letter to shareholders outlining the exit opportunities it would support if it wins control of the £736m global equities trust at next month’s annual general meeting.

Saba said: “In the event the new board elects to run a process to change the company’s manager, we do intend to submit for consideration as part of the process.”

It said if its nominees were elected at the AGM, it would recommend the new board offer shareholders three choices:

• an immediate tender offer and exit at net asset value less costs;
• a tender following a potential SpaceX flotation reportedly planned for June but before any replacement of Baillie Gifford and change to the mandate;
• retain their investment in the company. 

EWI chair Jonathan Simpson-Dent hit back saying: “Shareholders should not be fooled; we have been here before. Saba continues to seek control despite shareholders having expressly rejected its proposals twice.”

In the letter, Saba said its record, as a leading activist hedge fund manager with a strategy of exploiting closed-end fund discounts, compared favourably to the underperformance of EWI in the past five years after its shares were hit in the 2022 growth crash. However, Investec analyst Alan Brierley recently examined Saba’s record on a US fund it took over in 2021 and found it was a “cautionary tale” fraught with performance and governance issues.

Saba said EWI’s 34% loss to shareholders over five years would have been worse had it not been for the stake in SpaceX that accounts for just over 16% of the portfolio following a doubling in the valuation of Elon Musk’s rocket and satellite company last November. 

Trusts managed by Baillie Gifford and RIT Capital Partners (RCP) are the only UK investment funds open to the public with exposure to the $1.25trn company. However, Saba used Baillie Gifford’s decision to take some profits in the Saba position last year as a reason to argue that it and the trust’s board should be replaced. Shareholders disagreed and voted against its resolutions to appoint new directors in January, although with a smaller majority than in a similar vote a year before.

Saba, a 31% shareholder in EWI, is opposed to the 100% tender offer the trust’s board is seeking to approve at a separate general meeting on 10 April before the AGM. EWI directors, who have urged the City regulator to intervene to stop its repeated challenges to the company, want to give shareholders an exit before there is a risk of the US firm winning control at the AGM. A large exit by non-Saba shareholders could lead to the trust’s wind-down.

Saba said its proposals were better than EWI’s tender offer which would leave shareholders with untraceable tracker shares tethered to the SpaceX position and could saddle them with unnecessary capital gains tax bills. It urged them to vote against the board’s tender offer. QuotedData explained on 13 March why we think EWI shareholders should vote for the board’s proposal.

Simpson-Dent said Saba’s letter was “designed to confuse and mislead shareholders” as it could not guarantee its proposals could be implemented by a new board and had provided no information on how its proposals would avoid triggering tax bills for shareholders.

EWI shares rose 1.1% to 215.4p. They have rallied 37% in the past year.

Our view

James Carthew, head of investment company research at QuotedData, said: “There is a lot to unpick in Saba’s latest statement. Let’s start with the last line: ‘there is a simple solution: launch a new investment trust and see whether investors queue up to back it’ which is talking about a replacement for EWI but is a suggestion that we have long made to Saba. We still see no evidence that investors in EWI, Herald (HRI), Impax Environmental (IEM) and the many other trusts that Saba has targeted want to be invested in an activist strategy. If Saba is adamant that they do, why doesn’t it try to launch a new trust and prove us wrong?

“Yet again, it says it is putting forward ‘independent’ directors, but then goes on to tell us all the various things that these so-called independent directors would do if they were in charge.

“For example, never is there a suggestion that these independent directors might look at the vast range of investment mandates and managers out there and come up with a better idea than an activist strategy run by Saba, let alone conclude that perhaps, after a long period where global small cap has lagged large cap, it might make sense to stick with the existing remit.

“Then there is the statement that ‘under the current board’s proposal, many shareholders would be… forfeiting the opportunity to see the SpaceX position through to a proper liquidity event”. That is just plain wrong. The whole point of the EWI proposal is that shareholders retain exposure to SpaceX until after it floats and those shares can be turned into cash.

“We could go on, but what is the point? Saba is bashing its head against a brick wall and demonstrating for anyone who’s interested just how bad it is at activism, hardly an advert for its services.”

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