Protect your portfolio: How to fight back against hedge fund aggression in UK investment trusts
Former Pensions Minister Ros Altmann warns retail investors, wealth managers, and regulators that the aggressive, short-term interests of the US hedge fund Saba Capital, which is attempting hostile takeovers like the one targeting Edinburgh Worldwide (EWIT), threaten the long-term, patient-capital model of the UK investment trust sector
A year ago, an aggressive US hedge fund launched the most audacious attack the UK’s investment trust sector has ever seen. Saba Capital built up stakes in seven UK-listed investment trusts which it dubbed the “miserable seven” and then tried to remove their boards and install its own nominees. This was, in effect, a hostile takeover attempt.
Saba was banking on the inertia of the high proportion of retail shareholders who make up the investment trust register, many of whom have traditionally not voted on corporate actions. Thankfully, galvanised by the media and the sheer self-interested audacity of the raider’s proposals, shareholders turned out in numbers to give Saba a bloody nose.
Some argue that Saba has done the sector a favour by putting boards on notice and forcing them to take discounts and performance more seriously. There is some truth in that.
Perhaps chastened by those early defeats, Saba has subsequently appeared more reasonable and collaborative. But does a leopard really change its spots? Saba’s latest tilt at Edinburgh Worldwide (EWIT) suggests perhaps not.Edinburgh Worldwide
Saba seeks to sack EWIT’s entire board and replace it with three “independent” candidates of its own choosing, although one has to question how they can be independent if they are chosen by Saba. Nor do they appear to collectively match the relevant experience of the current board. This seems like the same playbook as before – gain control of the Board, and thus the assets, then have freedom to pursue Saba’s agenda to profit from taking control. Retail investors and all other shareholders need to assess the threats and opportunities they are facing and make sure they vote.
Renewed attack
This renewed attack could herald similar actions against numerous other UK investment trusts in which Saba has taken stakes. There is a serious risk that EWIT’s retail investors do not realise what is happening and fail to exercise their vote. Allowing a determined hedge fund to keep returning to the register until fatigue or low turnout hands it victory is not healthy shareholder democracy.
Under current rules, disruptive resolutions can pass unless enough other shareholders actively vote against them. Given the FCA’s Consumer Duty rules to protect retail investors from foreseeable harm, should the regulator ensure that such board-removal attempts must reach positive approval thresholds. In this context, it would need to ensure platforms are doing enough to properly inform their clients and make voting as simple as possible.
In the meantime, I would urge retail investors, wealth managers, pension trustees and regulators to consider the longer-term risks of allowing short-term trading interests to impact confidence in the closed-ended model’s traditional long-term investment approach that has served investors well over time.
UK investment trusts are one of the strengths of our financial system, channelling patient capital into innovative, long-term assets which open-ended funds often struggle to hold. But this model depends on boards acting for all shareholders, not just an aggressive minority with a short time horizon.
So, if EWIT’s shareholders have doubts as to whether this takeover would be in their interest, they need to make their voice heard again and exercise their right to vote. Shareholders in other investment trusts also need to be vigilant to protect their long-term interests against raiders who may be more interested in short-term gain than long-term success.
Baroness Ros Altman is a former pensions minister and a member of the House of Lords