The first of its campaigns to hit the headlines centred on European Opportunities Trust (ticker EOT) following a period of poor relative performance under founder and manager Alexander Darwall. Saba lobbied the board for change and eventually secured a number of concessions. The trust introduced a tender offer which gave 25% of shareholders the opportunity to exit the shares at a small discount to NAV and on that basis survived its continuation vote.

Following this partial success Saba continued over the course of 2024 to build shareholdings in a range of other trusts, including large and well known names such as Herald (HRI), and several managed by reputable fund managers Baillie Gifford, Janus Henderson, Schroders and J.P.Morgan. The aim was to force the boards into actions that would reduce the significant discounts at which they continued to trade, allowing Saba to exit with a profit as and when those discounts closed.

Upping the stakes

When this largely failed to happen, Weinstein upped the stakes again by building even bigger shareholdings, up to 29% in some cases, and using them to call extraordinary general meetings at which shareholders were invited to sack all the existing directors and replace them with Saba’s own representatives, who after taking control would then award the management contracts for the trusts to Saba itself. No activist investor has ever adopted such an aggressive strategy or on such a scale before, at least in public.

In the event Saba’s “big bang” approach, unveiling all seven of these campaigns on the same day, shortly before Christmas last year, rather backfired. All the boards involved were galvanised into action, mounting a coordinated and ultimately highly effective campaign to persuade their shareholders to reject the proposals at the EGMs. The board of Herald Investment Trust led the way, securing 65% of the vote on an 80% shareholder turnout. The other six trusts also had large majorities against Saba. The latter’s rather bizarre choice of trusts to target, its hostile rhetoric and its implausible claim to be acting for “Mom and Pop” private investors rather than its own self-interest all worked against it.

That however is not the end of the story. Saba remains a significant shareholder in many trusts, and its ongoing campaign, although mostly unsuccessful in its stated aims, has clearly prompted significant change in the sector. Two of the smaller and less successful of the seven trusts highlighted in the New Year campaign, Keystone Positive Change (KPC) and Henderson Opportunities Trust (HOT), have since agreed or accelerated plans to wind themselves up and a third, the European Smaller Companies Trust (ECST), has struck a deal with Saba that should allow the hedge fund to exit most or all of its holding at a profit via a 42% tender offer.

Wake-up call

What is not in doubt is that the extensive media coverage of Saba’s public campaign has served not just to put investment trusts back into the public eye, but also acted as a wake up call for the sector as a whole, by underlining the need for boards to take more decisive action to eliminate the wide discounts which have prevailed for more than three years now. The average discount at the time of writing is around 16%, compared to just 2% at the end of 2021. This is despite a record amount of share buybacks, a string of mergers and/or takeovers, and scores of trusts voting to reduce their fees and in several cases to wind themselves up after failing to find new buyers for their shares.

It is difficult to deny that this renewed focus on self-help has been anything but to the benefit of investment trust shareholders generally. While other factors, notably rising interest rates, have contributed to the defeating of the investment trust sector over the last three years, boards have clearly realised that they cannot afford to sit idly by. Many are now urgently looking to engage more directly and more frequently with their shareholders. Platforms have been cajoled into making it easier for private investors to vote their shares, something which historically has been hard to do in certain cases.

Engaging with shareholders

Although Aberdeen investment trusts were not amongst those targeted in Saba’s pre-Christmas campaign, Christian Pittard, Aberdeen’s Head of Closed Ended Funds, notes the importance of shareholder engagement: “It is vital that shareholders are kept ‘in the know’ about their investments and we encourage them to vote on matters that could impact them. We have engaged proactively with investors holding Aberdeen trusts via platforms for several years. We encourage all those who don’t currently receive our targeted communications to sign up to do so.”

You may not like the aggressive style of US hedge funds, but the impact of Saba Capital’s campaign is not going to fade any time soon. It has underlined two important messages: for boards it is a timeless one of “adapt or die”; and for shareholders it is “don’t bet against investment trusts’ ability to recover from hard times”. They always have done so in the past and they will do so again.

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Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.

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