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Saba Capital decisively defeated in two more investment trust board votes

Saba Capital decisively defeated in two more investment trust board votes

US hedge fund Saba Capital has seen its bid to change the boards of two more investment trusts decisively defeated. Shareholders of both Baillie Gifford US Growth and Keystone Positive Change votes against Saba’s proposals.

The hedge fund had been planning to replace the existing boards with its own nominees and potentially also capture the mandates for those trusts.

Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said:

“It’s encouraging to see so many shareholders of Baillie Gifford US Growth and Keystone Positive Change come out and vote on this critical issue. The impressive turnout of retail investors demonstrates what can be achieved when shareholders are informed, enabled and motivated to have a say on their trust. Our campaign ‘My share, my vote’ aims to change the Companies Act so everyone receives information on their company and can vote.”

Saba had been aiming at trusts with a considerable discount to NAV and a large retail shareholder base in the expectation that smaller investors would not be told about the vote by UK investment platforms. These have been criticised for their lack of proactive communication with shareholders in the UK.

In the case of Keystone Positive Change, 60% of the votes cast were against Saba’s requisitioned resolutions. Excluding the votes Saba cast in favour of its own resolutions (representing 1,650,762 votes and approximately 38.87% of the votes cast), only a further 33,845 votes, representing just 0.80% of the votes cast, were voted in favour of the hedge fund’s proposals. This represents a singular and decisive defeat for Saba Capital.

As a result of the vote, Keystone’s five, independent non-executive directors remain on the board of the investment trust and said they will immediately refocus their efforts on delivering a full cash exit for shareholders in line with the proposals announced by the Keystone board prior to the requisition.

Karen Brade, Chair of Keystone Positive Change Investment Trust, said:

“I would like to thank all the shareholders who stood up to vote in support of the board’s recommendation. Of the votes cast, nearly 99 per cent. of the non-Saba shareholders rejected its proposals. Now our focus returns to delivering the proposed scheme that offers an uncapped cash exit and/or a rollover into a more liquid fund with a similar global impact strategy. We are confident that this remains in the best interests of shareholders.”

Still to come are the results of the shareholder votes at both CQS Natural Resources and Henderson Opportunities. Also in Saba’s crosshairs is the Edinburgh Worldwide Investment Trust. The trust’s board has requisitioned a general meeting for 14 February.


Record discounts in the investment trust sector

Saba has been able to build up a large position in at least a dozen UK-listed investment trusts, following a record period of double digit discounts in the sector. The average investment trust, excluding 3i, currently trades at a discount of 14%. The average discount has been wider than 10% since September 2022, peaking at 19% in October 2023.

This means that this period of double-digit discounts has lasted for 29 consecutive months, longer than any previous period of deep discounts since 1996. The second-longest period was between August 1998 and October 2000 (27 months), while the financial crisis saw double-digit discounts persist between September 2008 and September 2010 (25 months).

This is causing some private equity players to take advantage of these bargain basement prices, some of them with an activist agenda. A study of 212 experienced investment trust investors from Research in Finance suggests that these investors are attracted by the deep discounts on offer. These self-directed investors have been investing in trusts for an average of 16 years and have an average of £536,000 to invest.

Of these investors, 32% expect to invest more in investment trusts over the next six months, 60% expect to invest the same, and only 8% expect to invest less.

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