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A week before Christmas, Boaz Weinstein launched co-ordinated campaigns to oust the boards of seven UK investment trusts in which his hedge fund, Saba Capital, holds large stakes.
His complaint, that not enough was being done to narrow discounts to net asset value, was reasonable. His proposal, for Saba to seize control and create a fund-of-funds consolidation vehicle with an unspecified remit, was audacious.
His reception from shareholders has been singular: “bog off.”
Six of the seven funds targeted by Saba have delivered vote results so far, Using their figures, we can estimate total support for Saba’s proposals among independent shareholders and put a value on its UK master trust.
It’s a hypothetical exercise but, hey, it’s a Friday. Here are the scores so far:
An £11.3mn investment trust would be a very, very small investment trust.
Measured any other way, Weinstein has probably been good for the UK market. Lots of trusts have recently adopted measures designed to close discounts and repel activists, though no board will ever admit to being motivated by fear.
We can’t say, for example, whether today’s announced merger between Henderson International Income and JPMorgan Global Growth & Income would’ve happened without Saba’s sabre-rattling, though with HII trading 11.7 per cent below NAV, it’s likely to have focused some minds.
But opposition to Saba’s coup attempts has been strong, with support barely a rounding error, which raises the question of what happens next. Saba’s large holdings are now overhangs.
Even gradual selling into the market would open the NAV discounts back up, and without the discounts there’s not much chance of block sales to other activists.
Trusts could launch big tender offers, giving all investors the chance to exit at close to NAV, which would give Saba a win. But it’d destabilise the trust if too many shareholders want out on the same terms as Weinstein. The usual solution is to make tender offers conditional on future performance, but why would Saba accept the lock-in?
Solution Two would be for the trust to buy back shares and mop up Saba’s stake as it’s sold into the market, to the best of its abilities. But trusts can’t repurchase more than 15 per cent of their shares in issue per year, so the clean-up would take ages. And there’s a risk that Saba just sits tight and increases its voting percentage above the 30 per cent mandatory takeover threshold.
Solution Three is that Saba keeps agitating, perhaps with less dramatic demands such as board appointments, cash returns and mergers where it has cross-holdings. A person might think the strength of opposition among independent shareholders to Saba’s plans would make this course of action unlikely, but that person probably hasn’t met Boaz.
“Aren’t you embarrassed?” — the title of a 2014 Netflix special no one outside the US has watched, by a comedian no one in Britain has heard of — provided the leitmotif for Weinstein’s direct appeal to trust shareholders. All that noise over a master trust with a hypothetical market cap of just over £11mn suggests that, no, he’s probably not.
Further reading:
— UK investment trusts deserve a better enemy than Boaz Weinstein (FTAV)
— UK investment trusts are bad. What makes Boaz better? (FTAV)
