U.S. activist investor Boaz Weinstein is taking on Britain’s investment trust industry. He claims the sector, worth a staggering £269 billion ($333 billion), is riddled with underperformance. While his initial attempt to unseat the board of Herald Investment Trust failed, the battle is far from over. Weinstein’s firm, Saba Capital Management, is targeting seven trusts in total, with votes on Baillie Gifford U.S. Growth Trust and Keystone Positive Change Investment Trust happening imminently.
Investment Trusts Under Scrutiny
Investment trusts are companies listed on the stock exchange that hold assets. These assets can range from publicly traded stocks to private companies. Individuals can buy shares in these trusts to gain exposure to a diversified portfolio. Ideally, the share price of an investment trust should closely track the net asset value (NAV) of its underlying holdings. However, this is not always the case.
The Discount Problem
Trust shares can sometimes trade at a significant discount to their NAV. This discount presents a problem for investors, as they may not be able to realize the full value of their investment when they want to sell their shares. Weinstein argues that this persistent discount issue, coupled with what he sees as subpar performance, needs to be addressed.
Saba’s Proposed Solutions
Saba Capital Management has put forward several proposals to improve the performance of the targeted trusts. These include merging underperforming trusts, buying back shares to reduce the discount, and shifting investment strategies towards private assets, which are often less correlated with public markets.
Pressure for Change
Regardless of the outcome of the remaining votes, Weinstein’s campaign has already sent ripples through the investment trust sector. They are now facing increased pressure to improve their performance and address the discount issue. Many are taking steps to narrow the gap between their share price and NAV, such as implementing share buyback programs and communicating more effectively with shareholders.
A Call for Greater Transparency and Accountability
Experts believe that this activist campaign will lead to greater scrutiny of investment trusts. “Saba’s campaign has already set a powerful precedent,” says Sonia Falconieri, a finance professor at London’s Bayes Business School. “The message is clear: performance and governance will remain under intense scrutiny.” This increased attention could lead to positive changes in the industry, ultimately benefiting investors.
The Battle Continues
Weinstein remains determined to see his campaign through, even if it takes time. He has stated that he is prepared for a long battle and has even received additional funding from institutional investors since the campaign began. The coming weeks will be crucial for both Saba Capital and the targeted investment trusts, as the remaining votes will determine the future direction of this sector.
