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A campaign to overturn seven British investment trusts has been a “massive wake-up call” for the “complacent” £266bn industry and could lead to a more competitive sector, according to investment experts.
The US activist fund Saba Capital lost its attempt over the past couple of weeks to replace the boards of six listed investment trusts, after shareholders voted for existing directors to remain in place.
Though Saba largely failed in its campaign, with just one trust left to vote next week, the hedge fund’s attempt to swoop in and ultimately take over management of the trusts has been a major shake-up for the 150-year-old industry.
“It has been a massive wake-up call for the sector that has got far too complacent,” said Ben Yearsley, a director at consultancy Fairview Investing.
“Captive fee income meant very little ever needed to be done to keep shareholders happy — where was the incentive? It’s been a good kick up the behind.”
Saba, led by Boaz Weinstein, targeted the trusts because it claimed their boards had failed to hold the investment managers to account over poor performance.
Shares in investment trusts are listed on exchange and trade at a discount if they lag behind the value of the trust’s assets.
When Weinstein made his campaign public in December, the seven trusts were trading at discounts ranging from 12-14.7 per cent on average over three years.
The trusts he targeted were Baillie Gifford US Growth, CQS Natural Resources Growth & Income, European Smaller Companies, Henderson Opportunities, Herald Investment and Keystone Positive Change. The vote results for Edinburgh Worldwide Investment will be revealed next Friday.
“It has shaken the industry up and highlighted the value in the vast majority of investment trusts,” said Darius McDermott, managing director of FundCalibre, a fund rating service.
“I’m very hopeful it’ll improve the industry, which needed a damn good shaking down. It should now see shareholders in a better position. I think boards will pay better attention to capital allocation.”
He added that investment trusts represent “a good part of the London stock market” and constitute about a third of the FTSE 250 in terms of number of companies. “The government should be protecting this sector,” he added.
Richard Stone, chief executive of the Association of Investment Companies, told the FT that investment trusts had “seen discounts at extended levels for an unprecedented period”.
“It’s always possible to do more and the number of strategic reviews ongoing in the sector highlight an increasing number of boards looking at a wide range of possible action,” he added. “This proactive approach delivered record levels of share buybacks and mergers last year, and this is continuing.”
Saba Capital did not respond to request for comment.
Additional reporting by Costas Mourselas
