Saba takes trusts to task in wounding webinar: ‘We are the voice of mom and pop investors’

Activist investor Boaz Weinstein has ripped into the 'boys club' of UK investment companies as he fights seven trusts ahead of shareholder votes on their future.

Activist investor Saba Capital has declared itself the ‘voice of mom and pop investors’ in its battle against seven UK investment trusts, as the New York hedge fund set out its plan to save the industry from what it calls an ‘an ecosystem of greed’.

In a webinar on Tuesday afternoon that served as an impassioned defence of Saba’s performance, activist track record and governance, founder Boaz Weinstein – who said he had worked on Wall Street since he was 15 years old – took trust managers, boards, and even investment brokers to task for protecting the self-serving ‘boys club’ of investment companies.

The target of his indignation was the seven trusts that Saba requisitioned on 18 December. Since, Saba has been involved in back-and-forth mud slinging, with accusations from both sides of misdirection, misrepresentation of performance, and now – from Weinstein – ‘malpractice’.

He said the targets – Baillie Gifford US Growth (USA ), Edinburgh Worldwide (EWI ), Keystone Positive Change (KPC ), CQS Natural Resources Growth & Income (CYN ), Herald (HRI ), Henderson Opportunities (HOT ), and European Smaller Companies (ESCT ) – and British media had built a ‘jingoistic’ narrative around Saba that ‘we are some American coming in and doing something to take your precious fund away’.

However, Weinstein reiterated that it was quite a simple case of those funds not making investors money due to their large discounts and, in most cases, poor three-year performance.

He said the funds were happy to take no action to the benefit of shareholders until Saba got involved on their share registers, where the activist’s reputation preceded it and the shares jumped in price.

‘Saba bought a falling knife,’ he said. ‘That made you money.’

The large holding Saba owns – which in December ranged between 19% and 29% across the requisitioned trusts, rising in some cases since – means it has ‘an enormous amount at stake when it comes to the price going up and [the trust managers] have nothing at stake…’

‘What they have at stake is keeping you trapped,’ added Weinstein.

Saba: We’ve forced trusts to take action

While five of the seven trusts requisitioned have moved to appease shareholders in some way, including offering cash exits, Weinstein said that was ‘not out of the goodness of their hearts’ and would not have happened if Saba had not invested.

‘They are finally doing something to try and protect their wallets,’ he said, criticising the trusts for operating in an ‘ecosystem of greed’.

While referencing Katie Potts’ strong reputation as a portfolio manager, he noted Herald’s 20-year stint trading at a discount that ‘trapped’ investors, which the board had done nothing to tackle until this month.

Weinstein said the resolutions he is asking investors to vote on, which would see the boards ousted and Saba ultimately become manager, offer a tried and tested method that has delivered improved shareholder returns in the US. For those shareholders who do not want to stay invested under Saba if it’s victorious at the general meetings, Weinstein said he would give investors an exit option.

For Herald, Saba has already guaranteed a full cash exit, possibly as it thinks that vote will be hardest to win, while for the other six trusts they would offer ‘substantial’ liquidity.

Weinstein contrasted that to the likes of Keystone Positive Change, which Baillie Gifford took over in 2021 without a tender offer. 

‘We are the voice of mom-and-pop investors,’ said Weinstein. ‘We are working for our investors.’

Boaz’s trust-busting vehicle

Weinstein has big plans for the trusts should the seven votes fall in his favour, stating ‘we might merge a number of funds together but not all of them’. He added that the Baillie Gifford funds with unlisted SpaceX – which has been continually written up in valuation due to excitement about the rocket business – may ‘go down a different path’.

Saba gave more detail on its plan to merge the trusts, should it succeed in upcoming votes, into a trust of closed-ended fund holdings that it wants to target with activism. Weinstein said that would be a first for the London market where the manager ‘is working to narrow the discounts and give investors value’.

‘Shareholder-friendly action will cause the funds to rise and make investors an enormous amount of money just by being there [on the share register],’ he said.

While Migo Opportunities (MIGO ) might contend it plays a similar if quieter role, Nick Greenwood’s fund is small at a £71m market valuation.

It is not just the trust market that Weinstein wants to shake-up, as he looks to fulfil a role as the ‘white knight’ for the UK market.

He complained that while the requisitioned trusts have defended their position as integral to the UK stock market, just 16.7% of their combined £3.9bn of assets is actually invested in UK securities.

‘We are a UK buyer and we want to buy more by selling US assets and buying UK investment trusts,’ said Weinstein.

‘We don’t want to do that out of the US but on the London Stock Exchange. We want to invest in the UK stock market.’

Saba’s excoriating webinar on Tuesday followed responses from Baillie Gifford trusts and those run by Janus Henderson, among others, in the course of an ongoing back-and-forth between Saba and its targets.

Herald is the first to face a requisitioned general meeting on Wednesday next week.

Investment company news brought to you by Citywire Financial Publishers Limited.