Baillie Gifford ‘appalled’ by US activist investor Saba Capital’s conduct
Baillie Gifford has hit back against an activist campaign by US hedge fund Saba Capital targeting three of its investment trusts, calling the hedge fund’s actions “a backdoor attempt to seize control”.
“We are appalled by Saba’s actions and conduct,” said Karen Brade, chair of one of Baillie Gifford’s trusts targeted by the attack.
Last month, Saba launched a campaign against seven UK trusts, three of which are run by Baillie Gifford, attempting to replace their boards due to underperformance and wide share price discounts to underlying assets.
Saba is the largest investor in all seven of the trusts, controlling between 19 and 29 per cent of the shares.
All three trusts run by Baillie Gifford issued a statement today, condemning Saba’s actions and calling for shareholders to vote against the hedge fund’s resolutions.
Baillie Gifford US Growth said a vote over Saba’s proposals would take place on 3 February, and described Saba’s proposals as making “substantial, self-serving and destructive changes”.
“Saba did not raise any concerns about the fund’s discount or performance in two meetings with the USA board (both at the request of the board) in 2024, and did not take up an offer to meet with the manager,” noted Winterflood analyst Emma Bird.
“We tend to agree with the boards’ statements that the proposals do not appear to be in the best interests of shareholders as a whole,” she added.
Baillie Gifford’s trusts made a variety of arguments to back keeping its board in place against Saba’s campaign, including noting their strong long-term performance and ability to invest in private companies.
Two of its trusts, Baillie Gifford US Growth and Edinburgh Worldwide, have seen their share prices jump by more than 25 per cent since the start of November, which analysts have largely attributed to their investment in Spacex.
Press speculation first stated in June that a tender offer had begun valuing Spacex at $210bn (£167bn), while reports emerged in November that a tender offer valued it at $250bn (£200bn) for outside investors, and $350bn (£279bn) for employees.
As a result, Edinburgh Worldwide upgraded the underlying value of its portfolio by 5.1 per cent following the election, while Baillie Gifford US Growth valued the portfolio bump at a 5.2 per cent increase.
“Disclosure is limited given the private nature of the business, but the investment companies have confirmed their exposures at the end of November and at the close on 11 December, which allows us to calculate that it appears to have been a 40-45 per cent write-up in the valuation,” wrote Deutsche Numis analyst Ewan Lovett-Turner.
This tender offer also allowed the Baillie Gifford trusts to dispose of its “particularly large” exposure to Spacex, according to Lovett-Turner, as it was “certainly clear” that they reduced their stake in the company during November.
Baillie Gifford US Growth and Edinburgh Worldwide both saw their share price discount to underlying assets jump from double digits in mid-September to a premium by the start of December, before falling back slightly.
However, Saba co-founder and CIO Boaz Weinstein pushed back on this assertion, noting that other Baillie Gifford trusts that also hold stakes in Spacex had not matched the share price growth shared by those with a Saba investment.
Baillie Gifford’s Scottish Mortgage, which upgraded the value of its underlying assets by 3.7 per cent following the tender offer news, only saw a 7.5 per cent increase in share price.
Instead, Weinstein argued on X that the growth had come from Saba building a significant stake in the trusts.