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.”

Having previously calculated the annual management fee quarterly as a percentage of NAV, the percentage rate will now be applied to an equal weighting of the average closing daily market cap and the NAV at the start of each quarter.

The trust’s board said that the new agreement could save £1.6m compared to a fee based solely on NAV.

John Leggate, chair of Gresham House Energy Storage fund, said: the new fee arrangement “better reflects” current market conditions and investor sentiment.

See also: PA Live A World Of Higher Inflation 2025

“The new arrangements further build on the significant alignment between the manager and shareholders by virtue of their existing substantial share ownership. 

“The next three years will involve a very intense workload for the Manager as the company delivers on its three-year plan and the Board will keep the fee arrangements under review on an annual basis.”

Ben Guest, fund manager of the fund and managing director of Gresham House New Energy, added: “We recognise the past 18 months have been tough for all shareholders.

“We are pleased to have concluded these revised fee arrangements which further motivate the manager to deliver for shareholders. Our focus is squarely on delivering against the three-year plan unveiled during the Capital Markets Day last November.”

The trust currently trades at a 62.7% discount, according to the Association of Investment Companies.

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).

DSM initially decided to return capital to shareholders in 2023, following a “dispiriting time for micro-cap stocks”, with shares trading at a discount of between 15% and 1%. Ultimately, the board concluded a managed wind-down would be in the best interest of investors.

Since then, shareholders have received special dividends of 63.9p per share in aggregate, and the portfolio now holds just one listed investment in Centaur Media, alongside a secured loan note in Real Good Food and cash. Net asset value currently stands at £2.3m.

The trust’s investment in Centaur has not yet been realised, according to the board, due to “indications of strategic action by the management team”.

“Your board now seeks the most effective way to return cash to shareholders and limit further costs,” it stated. “With the company’s portfolio significantly reduced and the special dividends paid, your board has determined that it is now the appropriate time to put proposals to shareholders to undertake a members’ voluntary liquidation of the company, which will eliminate certain of the costs associated with running a listed vehicle.”

In order to enter into members’ voluntary liquidation, shareholder approval at an upcoming meeting must reach at least 75%. The meeting will take place at Dickson Minto’s offices in Old Broad Street on the 21 February at 10am.  

Under the proposals, Derek Neil Hyslop and Richard Peter Barker of Ernst & Young have been appointed as the liquidators. They will have the authority to distribute cash to shareholders, after the trust’s liabilities have been paid and wind-up costs have been taken into account. The liquidators are expected to make an initial distribution during the week beginning 3 March 2025 of approximately 2p per share.

Aurora had successfully fattened itself up under the management of Phoenix Asset Management, with its assets under management (AUM) up almost 13 times to £193.6m since the firm took charge in 2016. But despite this growth, large wealth managers were still turning their backs on the trust before the merger with Artemis Alpha took place, according to its chair Lucy Walker.

“While we’d had fantastic organic growth, we knew a transaction would be a great opportunity to bring greater scale and liquidity to the trust,” she says. “Being realistic, the demand for size and scale has only grown since Phoenix took over.”

See also: Investment trusts: Growth story in Japan

Yet even after the merger, the newly re-named Aurora UK Alpha trust is not on the radar of larger wealth managers. A full-scale merger without redemptions would have boosted AUM by 64% to £353m, but many shareholders chose to sell their holdings at a lesser discount amid the consolidation process. The trust is only 34.8% larger than pre-consolidation, with assets of £260.9m as at December.

Walker says the trust will still have to double its size to reach the threshold necessary to even be considered by most wealth managers. It is this rapidly rising bar set by wealth firms that has triggered M&A activity among investment trusts to soar to new heights in 2024, she adds.

“The consolidation of wealth managers has been the catalyst without a doubt. When I was a fund buyer at Saracen, my minimum size was £100m, but that was already too low by the time I left in 2020. Then it went up to £250m, then £500, and even up to £1bn for the largest wealth managers. Clearly there have also been the challenges of interest rates normalising, discounts broadening and cost disclosure, but the single biggest factor has been the consolidation of the client base.”

Read the rest of this article in the January edition of Portfolio Adviser Magazine

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.

PA Events: PA Live: A World Of Higher Inflation 2025

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.”

The US hedge fund has nominated its own partner and portfolio manager Paul Kazarian as director to most of these boards, as well as Saba’s founder and chief investment officer Boaz Weinstein as a director candidate at the Baillie Gifford US Growth Trust PLC.

According to the FCA, a director is not deemed independent by the City watchdog if they “represent a significant shareholder” or have “a material business relationship with the company”. Saba currently owns between 19% to 29% of the shares in each trust. In a previous statement, the firm has said it “intend[s] toadd one or more additional independent directors to each board as soon as reasonably possible following the trusts’ general meetings,” which would be in addition to the seven other independent candidates already put forth by Saba across each trust.

See also: AIC raises concerns over Saba with FCA

While Saba has also pledged that Weinstein and Kazarian would not vote on board decisions relating to Saba, Edison was sceptical that this would ensure independence.

“If these board members fail to adhere to Saba’s plans, the hedge fund could try to oust them in the same way it is currently trying to remove existing board members,” it said.

“Even if the proposed board members who are not part of Saba’s team have no formal business ties to the latter, we believe it is very likely that they will pursue Saba’s agenda rather than provide an independent perspective on the best way forward for these targeted trusts.”

The FCA has attempted to prevent external influence on decision making, and the AIC’s governance code notes that boards “should take action to identify and manage conflicts of interest, including those resulting from significant shareholdings, and ensure that the influence of third parties does not compromise or override independent judgement”.

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

It is provisions such as these in the AIC’s Corporate Governance Code that make Edison unconvinced that board independence can be reached under Saba’s plans.

“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,” it said.

According to a statement from Saba Capital, “If Saba’s nominees are elected, the board of each trust will be legally compliant at all times under the FCA Listing Rules and will ensure compliance with the highest standards of governance. Following the general meetings, each board will comply with the AIC Code of Corporate Governance as soon as practicable, as the nominees intend to appoint one or more additional independent directors with suitable experience. Saba and its nominees are focused on providing shareholders reliable returns, boards that advocate for shareholders’ best interests and managers that are focused on delivering value.”

Edison is not the only concerned party to raise alarms around this matter – the Association of Investment Companies (AIC) reported Saba’s potential corporate governance breach to the FCA last week.

Baillie Gifford US Growth Trust and Henderson Opportunities Trust are clients of Edison Investment Research.

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.

Net asset value fell to £216.9m from £345.9m over the financial year, which came largely due to a £71.4m decrease in the fair value of investment properties.

The overall loss before tax for the year to 31 August 2023 amounts to £118.2m.

Following the publication of the overdue results, board members Peter Cardwell, Lynne Fennah, Simon Moore and Marlene Wood have all stepped down from the board.

The trust’s shares have remained suspended since early 2023, after it was unable to publish its results for the 2022 financial year on time.

See also: Home REIT repays Scottish Widows loan

Michael O’Donnell, chair of Home REIT, said: “The publication of the 2023 Annual Report and Accounts is a further positive step toward the relisting of the company’s shares.

“We remain focused on optimising the value of the portfolio and maximising returns to shareholders, while keeping disruption to underlying residents to a minimum, in line with the company’s Managed Wind-Down strategy.

“The company has made significant progress in recent months, with debt now fully repaid and the remaining portfolio launched for sale. I would like to once again thank shareholders for their ongoing patience as we continue to work towards the resolution of the remaining challenges facing the company.”

Since August 2023, the trust has sold or exchanged on the sale of 1,622 of its properties in a bid to pay down its borrowings, raising £244.1m.

As part of the firm’s managed wind down process, its remaining property portfolio of 851 assets is currently being marketed for sale, being independently valued in excess of £175m.

Home REIT has received a pre-action letter from Harcus Parker on behalf of a group of shareholders in the trust.

The trust’s board said it intends to “vigorously” defend itself in respect of the threatened litigation and has denied the allegations made against it.

Meanwhile, it reaffirmed its intention to bring legal proceedings against its former investment adviser, having issued pre-action letters last year to Alvarium Fund Managers (UK) Limited and AlTi RE Limited on 12 April 2024 and to Alvarium Home REIT Advisors Limited.

US-based hedge fund Saba Capital is attempting to take ownership of seven UK investment trusts in total that it currently owns shares in, including Keystone Positive Change, Henderson Opportunities Trust and Baillie Gifford US Growth.

Plans put forward by Saba, which was founded by its CIO Boaz Weinstein in 2009, would see the trusts’ independent boards replaced by two new directors, as well as a change to the companies’ mandates and investment managers.

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

According to a London Stock Exchange announcement published today (14 January), ISS has stated that Saba “has not presented a compelling case for change, let alone a case for a majority position on the board and a strategy overhaul” ahead of Herald’s general meeting. It has therefore recommended that shareholders vote against the requisitioned solutions at the meeting, which will take place at midday at 10-11 Charterhouse Square in London.

The recommendation follows a circular published by Herald investment trust on 3 January this year, whereby the board unanimously recommended that shareholders vote against Saba’s attempted takeover.

Andrew Joy, chair of Herald investment trust, said: “The board of Herald welcomes and is encouraged by the recommendation from ISS for shareholders to vote against the requisitioned resolutions proposed by Saba on 22 January 2025. The recommendation supports our belief that the proposals from Saba are not in the best interests of all shareholders, and we strongly urge all shareholders to vote against the requisitioned resolutions proposed.”

The Herald investment trust is the first company to have scheduled a meeting for shareholders to vote on the proposals, with a majority of the other trusts scheduling meetings during the first week of February.

Herald hits back at performance claims

In a separate LSE announcement this morning, Herald investment trust’s board has responded to Saba’s claims that its strong performance track record justifies its desire to take over the trust.

See also: Saba Capital launches campaign to replace seven investment trust boards

According to Herald, the trust has “materially outperformed” the Saba Capital Master Fund – the US firm’s flagship product – since its launch in August 2009 – on both an annualised and cumulative basis.

“The board believes that the Saba Master Fund has delivered an annualised net return of approximately 4.8% from 1 August 2009 to 7 June 2024 (being the latest date to which its performance data is available from public sources), implying a cumulative return of approximately 99.5% (in each case calculated in USD, the Saba Master Fund’s base currency),” it said. “In direct contrast, Herald’s annualised NAV total return over the same period was 14.1%, or a cumulative return of 611.4% (in each case calculated in GBP, Herald’s base currency).”

“Furthermore, the reported discrete annual returns for the Saba Master Fund raise questions regarding the potential volatility of Saba’s strategy. For the 13 years that annual performance data is available publicly from third party sources and press articles (2010 to 2023 inclusive, with the exception of 2017. Only cumulative or partial data is available for 2009, 2017 and 2024), the Saba Master Fund delivered negative annual performance in six of the 13 years according to such sources.

“Over the same period, Herald’s discrete annual NAV total return was negative in only three years.”

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

Therefore, Herald’s board does not believe that appointing Saba to take over the trust would be in the best interests of shareholders, adding that the firm wants to take control of the trust, “in part, add to its own assets under management”.

“Saba’s proposals, which lack any meaningful detail apart from the intention to appoint itself as manager, fundamentally change the company’s investment strategy and offer an uncapped cash exit on uncertain terms, risk significant value destruction for shareholders and are the anthesis of the company’s successful long-term investment approach.”

Herald’s board added: “The board believes that Saba’s proposals are designed for its own economic benefit and will be to the detriment of those shareholders who wish to remain invested in a proven strategy which has delivered a 27x NAV total return since the first day of dealings.”

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.”