The boards of The European Smaller Companies Trust and Edinburgh Worldwide have followed investment trust peers in making their final pleas to shareholders to reject proposed takeovers by Saba Capital.
Saba last week laid out plans to overhaul and merge up to seven investment trusts it has targeted in a bombshell takeover attempt.
The hedge fund hoping to launch a new strategy targeting London-listed investment companies trading at large discounts to net asset value.
Its founder Boaz Weinstein once again criticised boards and management, who he accused of failing shareholders in the wake of disappointing performance and an extended period of high discounts.
The board of The European Smaller Companies Trust on Monday said Saba was guilty of ‘deliberate misdirection’, by ignoring ‘the strong investment performance of the company to advance its own agenda’.
The investment trust has outperformed peers in the AIC European Smaller Companies over one, three, five and ten years, adding 18.5, 8, 61.9 and 239 per cent over each timeframe respectively.
Its board says the trust has also outperformed its benchmark over each period since Ollie Beckett took over as portfolio manager in 2011.
Saba Capital founder Boaz Weinstein is targeting seven London-listed investment trusts with attempts to replace boards and management
The trust currently sits on a discount to NAV of around 8.8 per cent, having narrowed significantly from as high as 17 per cent in early 2023.
The board also warned investors that Saba ‘intends to radically change your company’s investment strategy…at a time when the sector is attractively valued’.
Chair James Williams said: ‘Saba’s intentions are now clear, they want to seize control of your company, appoint themselves as manager, profit from the prospective management fees and change the investment approach.’
Saba’s proposals will be taken to The European Smaller Companies Trust investors on 3 February.
Edinburgh Worldwide on Monday convened its annual general meeting to coincide with the Saba vote, giving investors the opportunity to confirm the reappointment of current directors and ‘provide a clear mandate’ to continue with the trust’s current strategy.
Chair Jonathan Simpson-Dent urged investors to exercise their voting rights, warning ‘Saba is gambling on a repeat of the low voter turnouts at previous shareholder meetings’.
He said: ‘Edinburgh Worldwide Investment Trust is under attack from Saba, a US hedge fund manager.
‘Saba has been clear; it wants to harvest cash from the Trust’s portfolio which Baillie Gifford has constructed for the long term, and they want to earn fee income by installing themselves as investment manager and convert the Trust into a Saba fund of funds.’
Simpson-Dent warned investors could be left stuck with ‘a mandate you have not chosen, a manager with no track record in Edinburgh Worldwide’s specialist area, a loss of independence and a loss of the stringent governance and shareholder safeguards usual in the UK’.
He added: ‘Put simply, I do not believe that they are the right people to represent you as Shareholders.
‘On a personal level, 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.’
Edinburgh Worldwide, which invests in a portfolio of public and private assets, will face its Saba vote on 14 February.
The Baillie Gifford-managed fund, which currently sits on a discount to NAV of around 4.9 per cent, has returned 31.7 per cent over the last 12 months and 138 per cent over the last 10 years.
However, it has lost 21 and 7.6 per cent over three and five years, respectively, according to the Association of Investment Companies.
Co-managers Douglas Brodie, Luke Ward and Svetlana Viteva wrote in an open letter on Monday that performance had been hurt disproportionately by the global pandemic and ensuing rise in inflation and interest rates.
‘Our deliberate and structural skew towards immature businesses building for the future was deeply out of sync with a stock market that craved near-term cashflows and predictability,’ they said.
The managers acknowledged ‘some mistakes in execution’ and noted ‘how frustrating the past three years of poor performance have been for shareholders’.
They said: ‘We have learnt important lessons and, over the past year, sought to apply these to our investment processes and portfolio management, with the crucial challenge and support of the Board.
‘As such, we have improved our ability to patiently support management teams while holding them accountable for strong execution.
‘Recent investment performance has stabilised. We believe that 2024 will prove to be a significant turning point for EWIT. Combined with our enduring enthusiasm for our mission we’re energised by a sense that we are entering a new period for returns.’
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