Risks to corporate governance
Saba highlighted that if the new directors it has proposed are appointed, they will ‘transparently assess all go-forward options’, including the termination of the trusts’ current management agreements, replacing their current investment managers and refocusing their investment mandates on purchasing and/or merging with other discounted trusts. We believe that the proposed new boards and Saba’s appointment as the new investment manager would result in a corporate governance structure that does not fulfil the investment company industry’s best practices and Financial Conduct Authority’s listing rules, discussed further below.
Insufficient details create significant uncertainty
Investor activism may be beneficial for the shareholders of investment trusts as it encourages the trusts’ boards to intensify their efforts to maximise shareholder total returns and shareholder dialogue. However, we believe that Saba’s intention to use the targeted trusts as a platform to build a UK discount arbitrage franchise goes beyond pure investor activism. Saba presents a biased narrative to achieve its objectives and its recent proposals lack the necessary details to make an informed decision to vote in favour of them. This includes details related to: 1) the significant, immediate liquidity events (eg tender offers and/or buybacks) at NAV to be offered to shareholders, including Saba’s approach to the less liquid public small-cap and private holdings of these trusts; 2) the new investment mandate of buying/merging with discounted trusts and the plan for transitioning the trusts’ portfolio; and 3) measures to protect the rights of other shareholders, most notably the process for appointing new independent board members beyond the directors proposed in Saba’s open letter.
We believe it is important that shareholders cast their vote during the upcoming general meetings to actively shape the future of the trusts they are invested in. Those who hold their investments on platforms can find useful details on how to vote on the AIC’s website.
Click here to read more.
