U.S. activist investor Boaz Weinstein faced a setback in the initial vote regarding his plans to revamp the British investment trust sector. Despite this, the industry leaders, overseeing a total of 269 billion pounds ($333 billion), are not taking this lightly.
Weinstein's Saba Capital Management aims to take control of seven trusts in which it holds significant stakes. This move comes after Weinstein criticized the sector, which has been active for 160 years, for its widespread underperformance, a claim the trusts strongly dispute.
The first target, Herald Investment Trust, witnessed shareholders rejecting Saba's attempt to replace its board last week. The upcoming votes are scheduled for Baillie Gifford U.S. Growth Trust and Keystone Positive Change Investment Trust on Monday, followed by three others throughout Tuesday and Wednesday.
According to Daniel Lockyer, senior fund manager at Hawksmoor Investment Management, "Boards and managers have to take note... any trust facing discount volatility due to a lack of control mechanisms is at risk."
Investment trusts, publicly traded funds allowing individuals to invest in various assets, should ideally trade in line with their net asset values (NAVs). However, when trust shares fall out of favor, significant gaps between share prices and NAVs emerge, making it challenging for investors to liquidate without losses.
Win or lose, Saba's campaign is expected to increase pressure on trusts to enhance their performance. As Sonia Falconieri, a finance professor at London's Bayes Business School, noted, "The message is clear: performance and governance will continue to face rigorous scrutiny."
A Reuters analysis of the most recent accounts of the targeted trusts revealed a total shortfall of 350 million pounds compared to the 3.9 billion-pound asset book value they held between April and November last year. Although these figures provide just a snapshot, persistent discounts are evident.
Weinstein's proposed solutions include consolidating unpopular trusts, repurchasing shares, and investing more in private assets rather than large listed stocks to improve performance. Despite potential setbacks, he remains steadfast in his commitment, anticipating support from institutional investors.
Meanwhile, trust leaders are actively engaging with shareholders. Edinburgh Worldwide Investment Trust Chair Jonathan Simpson-Dent acknowledges the widening discounts and affirms the sector's dedication to addressing them.