The meetings, which saw shareholders vote on Saba’s proposals to replace the current boards with their own nominees, both saw investors back the incumbent leadership.

Over 60% of votes cast in each meeting were against Saba’s proposals. 98.5% of Baillie Gifford US Growth’s non-Saba shares voted against the resolutions, while just 0.8% of Keystone’s non-Saba shares backed the US hedge fund’s proposals.

See also: Gold funds surge in January as tariff fears mount

The result follows on from a similar vote at Herald Investment Trust on 22 January, at which investors also backed the existing board.

CQS Natural Resources Growth & Income and Henderson Opportunities Trust will hold their own general meetings on Saba tomorrow, before the European Smaller Companies Trust meets on 5 February.

Edinburgh Worldwide shareholders will vote on 14 February.

As with Herald, shareholder engagement was high with 78.4% of total voting rights being used at the Baillie Gifford US Growth trust meeting.

Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “It’s encouraging to see so many shareholders of Baillie Gifford US Growth and Keystone Positive Change come out and vote on this critical issue.

“The impressive turnout of retail investors demonstrates what can be achieved when shareholders are informed, enabled and motivated to have a say on their trust. Our campaign ‘My share, my vote’ aims to change the Companies Act so everyone receives information on their company and can vote.”

The AIC launched a campaign to ensure all investors are able to vote, called ‘My Share, My Vote’, in response to what it sees as ‘poor practices’ among some investment platforms and providers in the recent Herald general meeting.

The vote — which ultimately ended in defeat for Saba — sparked a huge turnout among shareholders, with a majority of the trust’s total shares with voting rights participating.

While major platforms have acted to keep customers informed, the AIC said, some failed to pass on voting rights and information, charge customers to vote, and decline to vote shares even when requested to do so.

Over the weekend, the Mail on Sunday revealed that Lloyds-owned platforms Scottish Widows, Embark and Stock Trader had not allowed investors to vote on the Herald proposals, though the bank has said that this has since been amended ahead of the next set of Saba votes at six other trusts.

See also: Franklin Templeton to retire Martin Currie brand after 144 years

The AIC has called on the government to make it mandatory for platforms to pass on company information and voting rights unless the customer opts out, by amending Part 9 of the Companies Act 2006.

The association also wants the government to ensure that where a customer does opt out, the nominee has a periodic requirement to confirm if this remains the customer’s preference, and allow any opted-out customer to opt in, on demand.

Richard Stone (pictured), AIC chief executive, said: “It’s simply unacceptable that investors find themselves left in the dark about their right to vote, prevented from voting or charged for the privilege. If we are serious about shareholder democracy, investors must be able to have their say.

“The large platforms have improved shareholder engagement significantly in recent years, and they have acted quickly in response to the Saba proposals. But we have to move beyond just relying on firms to do the right thing. We cannot have a situation where investors and their advisers are actively prevented from exercising their voting rights because the law allows their platform or service provider to choose not to pass on those rights.

“We are calling on the government to change the Companies Act so that nominees, including platforms, cannot avoid passing on voting rights and information to their customers. Now that investing takes place in a largely digital world, changing the law is essential for the health of our markets and to get more people engaged with their investments.”

An open letter outlining the issues was sent to business secretary Jonathan Reynolds.

Five of the remaining six trusts will vote on Saba’s proposals next week, starting with Baillie Gifford’s US Growth Trust and Keystone Positive Change on Monday (3 February).

65.1% of the total votes cast were against the eight requisitioned resolutions, which would have seen the trust’s board replaced by Saba’s nominees if passed.

A majority of the trust’s total shares with voting rights participated in the vote.

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In a stock exchange announcement, the board said only a further 59,221 non-Saba shares, representing just 0.15% of the votes cast, voted in favour of the resolution.

Saba’s shares represented 34.75% of the total votes cast.

Andrew Joy, chair of Herald Investment Trust, said the result provides a “clear, complete and incontrovertible rebuttal” of Saba’s proposals.

“The votes against Saba’s proposals were supported by independent proxy advisers including Glass Lewis and ISS. It is perfectly clear that the reason Saba’s proposals were rejected is that they were intended to lead to an outcome, namely Saba managing Herald, which the existing shareholders were simply not interested in.

“The reason shareholders invested, and continue to invest, in Herald is for long-term capital appreciation through investing in smaller technology companies, and they do not wish to be deprived of the opportunity to enjoy more of the same. They did not invest in Herald to become part of a short-term trading strategy.”

See also: BlackRock enters pact with Saba to ‘not seek to control or influence the board’

Following the vote, Saba’s Boaz Weinstein said he had been encouraged by the “thoughtful engagement” from fellow Herald shareholders in recent weeks.

“Over a brief period, our campaign has already enhanced value for shareholders and incited positive change at HRI – and elsewhere in the U.K. market – as evidenced by discounts to net asset value narrowing and numerous trusts announcing shareholder-friendly actions.”

He added that Saba would continue to pursue changes it believes are necessary to improve the trust.

“Saba remains committed to putting shareholders’ interests first, delivering returns for UK trust investors and ultimately rehabilitating this broken sector. We urge shareholders of the six other trusts at which we have requisitioned General Meetings to support Saba’s resolutions in order to set these trusts on the path to meaningful value creation.”

‘Victory for shareholder democracy

Reacting to the outcome, Richard Stone, chief executive of the Association of Investment Companies, said: “It’s very encouraging to see Herald shareholders turn out to vote in such numbers.

“This is a victory for shareholder democracy. There are six other trusts with votes just around the corner. It’s vital that all shareholders vote on the future of their investment trust. Shareholders need to act now.”

Voting on similar proposals for the six other trusts requisitioned by Saba will take place over the coming weeks.

Baillie Gifford US Growth and Keystone Positive Change will vote on 3 February, a day before CQS Natural Resources Growth & Income and Henderson Opportunities Trust.

The European Smaller Companies Trust meeting is scheduled for 5 February, before Edinburgh Worldwide shareholders vote on 14 February.

BlackRock gained assurances from Saba that it would “not engage in any takeover offer”, “seek to control or influence the board”, or “seek to change the composition of the board”.

Trusts that made this pact with Saba include BlackRock’s World Mining, Smaller Companies, Energy and Resources Income, and American Income trusts. It will be in effect until 31 August 2027.

BlackRock reached these agreements despite noting that “Saba does not hold any interests in the issued share capital” of any trust.

Yet it may be an effort to protect itself in case Saba attempts to oust and replace its boards, as it has attempted with Keystone Positive Change, Baillie Gifford US Growth, Edinburgh Worldwide, Henderson Opportunities, and CQS Natural Resources Growth and Income, Herald, and European Smaller Companies.

Each of these trusts has urged shareholders to vote against Saba’s proposals, expressing that they are self-serving and are seeking to take effective control of each company.

Keystone’s chair Karen Brade said she was “appalled by Saba’s actions and conduct”.

“Be under no illusion – we believe this US hedge fund manager is acting opportunistically, seeking to seize control of the board without a controlling shareholding, to pursue its own agenda,” she added.

The Association of Investment Companies (AIC) and Edison have gone a step further, raising their concerns directly with the Financial Conduct Authority (FCA) that Saba’s plans are in breach of the UK Corporate Governance Code.

They argue that Saba’s appointment of its own candidates would break rules protecting board independence.

In its governance code, the City watchdog deems a director biased if they “represent a significant shareholder” or have “a material business relationship with the company” – two factors that could work against Saba, considering it owns between 19% to 29% of the shares in each trust.

Analysts at Edison added: “A scenario in which an activist hedge fund is a significant shareholder driving the replacement of the current boards with its proposed directors, and subsequently appointed as the trust’s investment manager, creates a conflict of interest, especially when setting the terms of the management agreement.”

Current chair Jonathan Simpson-Dent took on the role in March 2024 and began a review of the process and management following a period of turmoil for the trust.

Across the past three years, the trust has lost 18.8% in share price total return, compared to a sector average loss of 8.8%, according to the AIC. However, in the past year to 20 January, the trust has a share price total return gain of 31.6%.

See also: AIC raises concerns over Saba with FCA

The trust has also seen a turnaround in its discount, which narrowed from 17.4% in October 2023 to 7.6% in October 2024. This was aided by share buybacks of 14.7m shares for £21.8m, representing 3.8% of the company. As of 20 January, the discount stands at 2.82%, according to the AIC.

Changes to the management of the fund included the appointment of Luke Ward and Svetlana Viteva becoming co-managers alongside Douglas Brodie. The company continues to invest over a quarter of its assets in private companies, including SpaceX.

A requisitioned general meeting will be held on 14 February which could result in the removal of the current board, including Simpson-Dent and the newly-elected Gregory Eckersley.

See also: Saba’s Weinstein fights back at criticism over trust plans

“Edinburgh Worldwide is run solely and independently for you, our shareholders. You have chosen Edinburgh Worldwide for its unique and early access to hidden gems, ground-breaking businesses which in many cases are not available on the public markets. Let’s not let Saba take that away. This is about consumer choice, allowing you the freedom to decide how, where and when to invest your money,” Simpson-Dent said.

“I am deeply troubled by Saba’s proposals. Investment trusts are extremely democratic by construction – Saba’s proposals are not. Saba’s overt land grab for its own end game exploits our long-standing retail Shareholder base, who usually do not vote.”

Over the past year, the US hedge fund has built large positions in Baillie Gifford US Growth; CQS Natural Resources Growth & Income; Edinburgh Worldwide; European Smaller Companies; Henderson Opportunities trust; Herald and Keystone Positive Change investment trusts.

Votes will be held in the coming weeks over Saba’s proposal to replace the boards of each trust with its own directors.

See also: Home REIT publishes overdue 2023 results as board steps down

In a webinar held today (14 January), the Saba Capital founder said that if the firm is successful in replacing the current boards, Saba would seek to merge either some or all of the trusts into a new listed vehicle and invest back into UK assets.

“If we’re given the opportunity, we would launch this Saba product that I think the UK sorely needs, given how every institution has been a seller,” said Weinstein.

“We are the white knight of the UK market. Everyone is a seller, we are a buyer.”

He added: “We are here to not just buy your trusts, we are here to buy billions more and rehabilitate this broken set of trusts and what is – in some ways – a broken industry that hasn’t been able to grow.”

He also took aim at the current boards of the seven trusts, criticising them for poor performance and having a lack of ‘skin in the game’.

Speaking to investors, Weinstein added: “This discount is not some ephemeral thing. It is costing ‘mom and pop’ investors in these trusts enormous amounts of money year in and year out. We are on the same side as you. We are invested alongside of you.”

Meanwhile, he also claimed that Saba’s action has already generated returns for investors with discounts narrowing over the last month.

“My prediction is in the coming three months, many of the trusts that Saba holds will announce shareholder friendly actions that will make you additional hundreds of millions of pounds that you would not otherwise have made because they want to head us off at the pass.

“The entire UK closed-end fund space in general will see smaller discounts, especially if we win and we have this fire power to buy up UK trusts. We’re talking about 83.3% invested outside of the UK that we may bring up to 100% invested in the UK.”

He also criticised aspects of the coverage of Saba’s plans, claiming that information provided by trust boards to shareholders comparing the performance of Saba’s own funds was “blatantly incorrect”.

See also: Update: Saba plans full cash exit option for Herald

Board independence

A large part of the concerns over Saba’s plans has been over the independence of boards, given that Saba is aiming to replace each trust’s board with directors who would be affiliated with Saba.

However, he said that having just two board members would be a temporary measure, with independent NEDs being appointed later on.

Reacting to the webinar, Laith Khalaf, head of investment analysis, AJ Bell, said that if Saba wins some of the forthcoming votes, the investment trust industry may have to prepare for more of the same.

“Whatever the results of the upcoming shareholder votes it will be interesting to see if the arrival of Saba prompts investment trust boards to take more measures to address large discounts,” he said.

“Shareholders will soon get the final say on whether Saba carries the day or not. Investors in each trust need to carefully examine the options and arguments laid out before them, both by Saba and the existing board, before coming to a decision and voting their shares.

The first vote will take place on 22 January, where Herald investors will have the opportunity to either back Saba or the current board.

Last September, the trust’s board set out proposals to fold the trust into the open-ended Baillie Gifford Positive Change fund following a challenging period for performance.

Shareholders were due to vote on the proposals in February. However, it has been postponed until after the outcome of Saba’s requisitioned general meeting.

See also: Update: Saba plans full cash exit option for Herald

Karen Brade, chair of Keystone Positive Change, said due to the size of Saba’s holding in the trust, the board’s proposals for the trust’s future were guaranteed to be voted down.

The requisitioned meeting, at which shareholders will vote on replacing the current board with Saba’s nominations, will take place on 3 February.

Voting on the proposals closes at 12pm on 30 January, or as early as 23 January if invested through a platform.

Keystone has urged its shareholders to vote against Saba’s proposals.

“Unfortunately, Saba waited until 18 December to requisition a general meeting to remove your independent Board and formally inform us that it intends to vote against the scheme, which would guarantee its failure,” Brade said.

“This destructive behaviour highlights just how disingenuous Saba has been and demonstrates its desire to take control of your company.

“In light of Saba’s current voting intentions, the board has decided it is in the best interests of all shareholders to adjourn the scheme meetings to a later date.”

The 100% cash exit would come at 99% of the trust’s total net asset value, which currently sits at £2.5bn.

In a statement, Saba said the cash exit would be overseen by a fully independent board, which would not expect it to occur for at least a year.

The plans to offer a full cash exit come in response to shareholder feedback, the firm said.

The requisitioned general meeting, at which Herald investors will vote on Saba’s proposal to replace the board with their own nominees, will take place on 22 January.

See also: Trusts targeted by Saba campaign urge shareholders ‘take no action’

Herald responds

The Herald board responded to Saba’s announcement, noting that Saba is not proposing to offer 99% of the value of today’s net asset value.

“Instead Saba is proposing an exit after ‘at least a year’ during which open-ended time period significant value could be lost from the underlying portfolio in anticipation or consequence of Saba’s known selling appetite,” the board said in a stock exchange announcement.

They added that the board has engaged with “many shareholders”, who they say have not expressed a wish for Saba to take over the management of the company.

Andrew Joy, Herald chair, said: “Herald has delivered strong investment performance. Since the first day of dealings (21 February 1994) the Company has delivered a 27x NAV total return.

“In direct contrast to Saba’s promise of the “opportunity for greater long-term returns under a new investment strategy”, the Herald Board does not believe that Saba’s long term performance track record supports this.”

See also: IA: UK reinvests in November following two months of exits

Reacting to both announcements, QuotedData head of investment company research James Carthew said that the Herald board’s argument is “straightforward”.

“More worrying to us is the tortured logic in Saba’s statement in which it claims to know what an independent board would do at some point in the future, clearly implying that it believes that it can direct the board’s actions. We cannot get our heads around how a board consisting of Saba employees, Saba appointees, and persons that these Saba-connected directors later co-opt onto the board could ever be construed as independent.

“We iterate our belief that investors should not surrender control of these trusts to this vulture investor. Furthermore, if Saba does seize control and seeks to impose its particular investment approach on the portfolio, investors should be given an exit at NAV, not at a 1% discount.”

If the votes were to go through, the board of the Opportunities trust said there could be a change in the current windup policy, which would remove the option for a full cash exit.

The board today announced a scheme that under the current conditions, would either allow investors to transition their investment to the open-ended Janus Henderson UK Equity Income & Growth Fund or receive the entitlement in cash.

See also: Baillie Gifford: ‘We are appalled by Saba’s actions and conduct’

In Saba’s letter to shareholders on 18 December, it said if the new board members were put in place, they would asses “all go-forward options available to the trusts”, including liquidity events that would offer shareholders “to receive substantial liquidity near NAV”.

Wendy Colquhoun, chairman of Henderson Opportunities trust, said: “Saba is attempting to take control of the Company with no assurances as to what will happen to shareholders’ investments. Saba wants to remove a strong and highly qualified independent Board that acts in the interests of all shareholders and replace it with its own non-independent board that may put Saba’s interests first.

“The Board’s message to shareholders is clear: please exercise your vote and don’t let Saba take unnecessary risks with your money.”

The European Smaller companies trust said that if the board was overtaken by Saba, its plans “indicate that they will not continue to invest in the European small cap sector”. In the past five years, the trust has had a share price total return of 73.6%, compared to a sector average 37.8%.

James Williams, chair of The European Smaller Companies trust, said: “Saba is attempting to take control of your Company by removing a highly qualified, independent board that acts in all shareholders’ interests. It’s clear that Saba’s motives are self-serving. It would like to install directors who would not be independent of the Company’s largest shareholder and has indicated that it may appoint itself as investment manager.

“This could endanger shareholder protections, radically alter the Company’s investment risk profile and deny investors the opportunity to benefit from the proven European small cap investment strategy.

“The Board is therefore recommending that shareholders vote against all resolutions proposed. Saba is counting on a high proportion of shareholders not voting. Investor participation is key and will determine the Company’s future.”

Saba launched a campaign in December to replace the boards of seven investment trusts, claiming that they “have not taken sufficient steps to resolve the trusts’ structural issues, depriving shareholders of superior returns”. It pointed to the narrowing of the trust’s discount since Saba’s building stake in the company. The trust currently trades on a 3.15% discount.

In response to the claims by Janus Henderson, Saba stated: “Over the last three years, Janus Henderson’s ESCT and HOT have both traded at a disappointing ~13.5% average discount to NAV. These respective double-digit discounts demonstrate that the trusts’ boards and portfolio managers have failed shareholders.

“During Chair Wendy Colquhoun’s tenure, HOT shareholders have suffered -40% cumulative underperformance. This disastrous track record is the result of poor investment decisions by the manager and negligent oversight by the board. Janus Henderson’s proposed reconstruction scheme for HOT is inferior to our nominees’ plan and their claim that Saba would seek higher fees at shareholders’ expense if selected as investment manager is made up. Do not be fooled – this scheme is simply a last-ditch attempt to protect the underperforming board, continue lining their own pockets with shareholder capital and distract from an indefensible track record.”

The US hedge fund acquired large stakes in each trust and used its influential position to recommend the complete replacement of both boards, as well as five other UK trusts.

It claimed the move would improve performance, yet Keystone’s chair Karen Brade said Saba’s proposal was made purely in its own self-interest.

“We are appalled by Saba’s actions and conduct,” she said. “We believe its proposed resolutions would be highly detrimental to the interests of all other shareholders.

“Be under no illusion – we believe this US hedge fund manager is acting opportunistically, seeking to seize control of the board without a controlling shareholding, to pursue its own agenda.”

Saba’s plan to replace each board with its own candidates would give it “effective control of the company,” added Tom Burnet, non-executive chair of Baillie Gifford US Growth.

While returns did drop 9% over the past three years, the trust’s board has been proactive in making improvements, with performance soaring 61.7% in the past year.

“Saba wants to subvert all of this,” Burnet  said. “Their proposals lack detail and if implemented, could destroy the board’s independence, radically alter the investment strategy of the company and prove highly disruptive to shareholder value.

“We urge all shareholders to make their voices heard and to vote against Saba’s self-serving and destructive proposals.”

The US activist investor said yesterday (18 December) that it intends to improve poor performance and narrow wide discounts on seven trusts it has stakes in by removing each of their boards.

“We believe the current boards of directors and investment managers have failed to perform versus their benchmarks and have, therefore, required Saba’s investment to narrow the deep trading discounts to net asset value and deliver returns for shareholders,” Saba said.

In response, the boards of Keystone Positive Change, Baillie Gifford US Growth, Edinburgh Worldwide, Henderson Opportunities, and CQS Natural Resources Growth & Income trusts advised their shareholders to ‘take no action’ in votes Saba intends to hold at general meetings next year.

Herald issued no response, while European Smaller Companies acknowledged Saba’s requisition notice but made no recommendation to shareholders.

Performance has suffered and discounts have widened on each of these trusts – which Saba owns between 19 to 29% of the shares in – but QuotedData’s head of investment company research James Carthew said the proposed action is not in the best interest of shareholders.

“Saba’s attack on the UK investment companies industry is entirely self-serving,” he said. “It aims to seize control of these funds to impose its own agenda, book a short-term profit on its investment and then – we suspect – extract management fees from a strategy that investors have shown no appetite for.”

The US hedge fund has requisitioned the boards of Baillie Gifford US Growth Trust, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment Trust, European Smaller Companies Trust, Henderson Opportunities Trust, Herald Investment Trust and Keystone Positive Change Investment Trust.

Saba, which owns 19-29% shares in each trust, is seeking to replace the boards of each trust. The activist investor said that it believes new boards are necessary to narrow discounts and correct underperformance.

See also: Saba Capital and its intentions for the UK investment trust industry

Boaz Weinstein, founder & CIO of Saba Capital, said in an open letter to shareholders: “Performance demonstrates that they have not taken sufficient steps to resolve the trusts’ structural issues, depriving shareholders of superior returns. While there are multiple levers to narrow these persistent discounts, inaction has been the consistent course of current leadership.”

At each meeting, which Saba said would be scheduled by early February, shareholders of the trusts will vote on removing all current directors of each trust and replacing them with new candidates.

If appointed, Weinstein said the new directors would assess all options available to the trusts, including terminating the trusts’ current investment management agreements and potential combinations with other investment trusts.

Reaction

Saba has been building its positions in investment trusts over the last two years and, after a long wait, it has finally publicly declared its intentions.

Stifel analyst Iain Scouller said: “Overall, we think it is helpful for the sector to have Saba’s game plan revealed and shareholders and boards can now take positions for or against these proposals. We also think given Saba’s significant voting power by the virtue of the size of their stakes, that they will be successful in changing the boards of a number of the trusts involved.

“We think it is now over to the boards of the Trusts to argue why Saba’s proposals should not be supported – they will need to come up with some strong counter-proposals themselves.”

Matthew Read, senior analyst at QuotedData, said that while clarity on Saba’s interests in the sector was welcome, he argues there is an ‘obvious flaw’ in their strategy.

“Saba wants shareholders to replace the current boards and deliver on its plan to ‘quickly deliver substantial liquidity and long-term returns for all shareholders’.

“However, those two are often mutually incompatible, particularly for some of the funds it is targeting where the underlying holdings are less liquid – Herald being the obvious example as it is a big fund with a huge tail of small illiquid positions that trade by appointment that could take years to sell off and you would likely move the market against you in many of these, particularly once the market spots you as a forced seller.”

See also: How do asset managers logistically prepare for major events?

He added that the call for substantial liquidity also ignores the unquoted positions held by trusts such as Baillie Gifford US Growth and Edinburgh Worldwide, while Read questions the logic behind targeting Keystone Positive Change, which is considering folding into its open-ended sister fund.

“This and the other challenges we highlighted above have long made us feel that Saba doesn’t really understand some of the funds that it is invested in,” Read added.

“It is well-documented that Saba has been successful with similar attacks in the US but the UK closed end fund market is fundamentally different. Standards of corporate governance are higher, and returns have generally been better, so this sort of approach makes less sense, particularly now that progress has been made on addressing problems such as the cost-disclosure issues and so discounts are now retrenching.

“It seems to us that their approach is very short-term in nature and this highlights a long running issue that, because many retail investors hold their shareholdings through platforms and do not tend to vote, that large professional investors get a disproportionate amount of the vote.

“This can lead to outcomes that are not in the interests of all shareholders and so we think that it is all the more important that shareholders in these funds make sure their interests are being protected and that they make sure they get out and vote.”