Saba action – your trusts need you

The second open letter to UK-listed trusts and shareholders

On 10 February 2025, Saba Capital Management launched a second campaign targeted at UK-listed investment trusts after the requisitioned shareholder meetings at six of the seven targeted trusts rejected Saba’s proposals to oust the existing boards (the shareholders meeting for Edinburgh Worldwide Investment Trust (EWI) is to be held on 12 February 2025).

The activist fund now proposes to change the structure of four trusts (two of which were targeted in the first campaign) to open-ended funds, while keeping the management and investment strategy intact. The four funds are CQS Natural Resources Growth & Income (CYN), The European Smaller Companies Trust (ESCT), Middlefield Canadian Income Trust (MCT) and Schroder UK Mid Cap Fund (SCP). According to Saba’s announcement, the proposed change in structure is aimed at closing the discount to NAV and providing shareholders with an opportunity to liquidate their investment. Saba holds a 29–30% stake in CYN, ESCT and MCT, and 11% in SCP (at the time of the announcement). Shareholders of CYN and ESCT opposed previous proposals during meetings held on 4 and 5 February. We encourage all investors to vote at the upcoming general meetings.

The first open letter to UK-listed trusts and shareholders

In late December 2024, Saba Capital Management requisitioned general meetings for seven investment trusts, proposing to replace their boards of directors. The London market needs permanent capital vehicles and the impact of the proposal has much broader implications for the LSE. Shareholders of six UK-listed investment trusts faced a crucial vote during general meetings. The trusts were Baillie Gifford US Growth Trust (USA), CQS Natural Resources Growth & Income (CYN), The European Smaller Companies Trust (ESCT), Keystone Positive Change Investment Trust (KPC), Henderson Opportunities Trust (HOT) and Herald Investment Trust (HRI).

Their shareholders needed to either approve or reject the agenda pursued by Saba, a US hedge fund, which has built sizeable stakes of c 20–30% in these trusts before the announcement, mostly by using a leveraged strategy via total return swaps. After carefully considering Saba’s radical proposals to oust the existing boards, replace them with new directors proposed by Saba and take over the management of the assets, the existing shareholders overwhelmingly objected the proposals (at the meetings already held). We believe Saba was likely to favour a plain opportunistic arbitrage strategy to exploit the discounts to NAV among UK-listed investment trusts (by replicating the strategy of Saba Closed-End Funds ETF; ticker: CEFS), coupled with growing its own assets under management and fee income, over providing shareholders with a truly differentiated value proposition tailored to each of these trusts.

See more from Edison on the topic:

• Milosz Papst, Edison’s director of content, investment trusts, has written an opinion piece on the Saba proposal for the FT Adviser – see here
• Read Edison’s report Saba Capital campaign – Your vote matters
• Listen to Uncovering Trusts – Saba Capital Campaign
• Watch the webinar – Saba Capital’s impact on the UK investment trusts industry

See more from Edison on the underlying trusts:

• Watch the Edinburgh Worldwide Investment Trust – executive interview
• Watch the Edinburgh Worldwide Investment Trust – Chair’s message
• Listen to CQS Natural Resources Growth and Income in 60 seconds
• Read the Baillie Gifford US Growth Trust — A unique high-growth strategy meriting support
• Read the Henderson Opportunities Trust — A time to act – Edison Group
• Read the CQS Natural Resources Growth and Income — A natural resources specialist worth preserving

Find out more below

• The Association of Investment Companies How to vote your shares, How to attend an AGM and AIC raises regulatory concerns with FCA about Saba proposals
• ShareSoc webinar – Discussion of Saba Capital Attack on Seven Investment Trusts and Implications for Shareholders

Results of the AGMs

• Herald Investment Trust (HRI) – Shareholders vote against Saba takeover
• Keystone Positive Change Investment Trust (KPC) – Result of Requisitioned General Meeting – 15:24:21 03 Feb 2025 – KPC News article | London Stock Exchange
• Baillie Gifford USA (USA) – Result of Requisitioned General Meeting – 14:58:43 03 Feb 2025 – USA News article | London Stock Exchange
• Henderson Opportunities Trust (HOT) – https://www.janushenderson.com/general-meeting-hot/?utm_source=linkedin&utm_medium=organic_social&utm_campaign=insight_investment_trusts
• CQS Natural Resources Growth and Income (CYN) – Result of Requisitioned General Meeting – 14:05:02 04 Feb 2025 – CYN News article | London Stock Exchange
• European Smaller Companies Trust (ESCT) – Results of Requisitioned General Meeting – 15:50:16 05 Feb 2025 – ESCT News article | London Stock Exchange
• Edinburgh Worldwide Investment Trust (EWI) – Result of Requisitioned General Meeting – 13:33:10 14 Feb 2025 – EWI News article | London Stock Exchange