Saba Capital’s intense attack on the investment trust landscape shows no signs of slowing down after the US hedge fund made a third attempt this week to oust the board of Edinburgh Worldwide, an investment trust managed by Scottish investment company Baillie Gifford.
Last month, shareholders of the trust rejected proposals by the activist investor to remove the board and install three directors of its own – the modus operandi of Saba Capital’s pursuits against numerous trusts. It was tight: 53.2% of the votes backed the board to stay in place, with 46.8% against.
However, excluding shares held by Saba Capital, shareholders representing 92.7% of the shares in issuance said ‘nay’ to the proposals.
Like a spurned lover hoping that this time it will be different, the US firm has submitted new proposals for the next general meeting to once again vote against the re-election of the current board. This time around, it is offering shareholders the chance for a complete exit at close to net asset value (NAV).
The saga has been running for more than a year and is the firm’s third attempt to oust the board.
Saba Capital believes shareholders in Edinburgh Worldwide “deserve better”. In an open letter this week, the firm said losses over the past five years, “flawed governance” from the board and “weak oversight of Baillie Gifford” are the reasons behind its continued approaches.
Much stems from the trust’s holding in SpaceX, which it sold down recently. Saba accused the trust of doing so to facilitate a merger with Baillie Gifford US Growth Trust. Edinburgh Worldwide cut its stake by a third, while Baillie Gifford US Growth Trust halved its position.
In response to the letter this week, Jonathan Simpson-Dent, chair of Edinburgh Worldwide, said Saba was not listening to shareholders or engaging with the board, while accusing it of “a number of misleading statements that have featured throughout its aggressive and personal campaign”.
This latest development has now drawn the ire of the Association of Investment Companies (AIC), the trade body that oversees the investment trust landscape, which has written to City watchdog the Financial Conduct Authority to stop Saba from continuously pursuing similar proposals that have previously been rejected.
Richard Stone, chief executive of the AIC, said: “It’s time for the regulator and government to get to grips with the threat that Saba poses and act to support UK companies.
“There should be a limit to the number of times a meeting can be requisitioned by the same shareholder making similar proposals. The current legislation does not give boards sufficient powers to stop the same proposals being brought forward repeatedly by a single shareholder when they have already been rejected. This creates a distraction and cost to the detriment of other shareholders.”
Edinburgh Worldwide is far from the only iron in the fire, however. Last week Saba Capital rejected a 100% tender offer from Herald investment trust, in which it has a more than 30% stake. Its position has increased as the trust has bought back shares to address its discount, upping the total percentage of Saba’s shares.
Matthew Read, senior analyst at QuotedData, said: “This is a frustrating and confusing development for Herald shareholders, particularly those who like Katie Pott’s strategy and have held the trust for a long time and still don’t know whether they are going to be forced to cash out to avoid being locked into a Saba-controlled fund.”
Saba Capital likely sees itself as the good guy, aiming to address poor performance and shake up the investment trust landscape for the betterment of shareholders.
Meanwhile, boards of its targets (and seemingly the shareholders in these trusts who vote against the proposals) may view the US hedge fund as an opportunistic tyrant aiming to get control of London-listed assets cheaply by taking advantage of trusts on big discounts.
The truth may lie somewhere in the middle. It is undeniable that the threat of Saba and its unique methods have encouraged change, with more boards buying shares back to address discounts, for example.
But its approach is becoming tiresome on shareholders who are continually required to vote down proposals they clearly do not want (judging by the sheer number of rejections over the past year) and boards that are spending time fighting these battles rather than focusing on governing their trusts.