Investment trusts have a long and occasionally chequered history.
The very best – such as the Scottish Mortgage Investment Trust (SMIT) and the Rothschild Investment Trust (RIT) – have, down the decades, done a brilliant job for retail investors.
But they are often traded at large discounts to their underlying assets.
These discounts reflect dissonance with shares on the London Stock Exchange in general, inconsistent performance and a view that they are often run for the benefit of insiders, fund management groups and executives, rather than investors.
One of my first encounters with the investment trust industry, as a young financial journalist, dates back half a century to the implosion of the investment empire run by a former lord mayor of London Sir Denys Lowson.
An investigation by The Investors’ Chronicle established that Lowson’s family of investment trusts amounted to no more than a grand Ponzi scheme in which several trusts were invested in each other and the underlying assets all but non-existent.
Raid: American hedge fund Saba Capital, run by Wall Street activist Boaz Weinstein, is targeting seven quoted investment trusts
The stables were cleaned long ago, and high governance standards generally prevail at the seven quoted investment trusts being targeted by the American hedge fund Saba Capital.
Saba is run by Wall Street activist Boaz Weinstein, who has acquired big strategic stakes.
Adopting tactics common in the US, Weinstein is requestioning a series of shareholder meetings with the goal of ousting existing management, replacing it with its own nominees and taking on the management role and fees that go with it.
There are several precedents for such incursions. New York-based Edward Bramson, through his Sherborne vehicle, took control of Foreign & Colonial, the nation’s oldest investment trust, in 2011.
He went onto dismantle Electra in 2014. That was something of a tragedy for UK plc as the trust closely was invested in cutting edge UK technologies.
A year later Elliott Advisors successfully boarded and conquered Alliance Trust. Elliott activism was helpful to investors in SMIT when it fell in with a share buyback, which helped to shrink the discount.
My conversations with Karen Brade, chairman of £149million Keystone Positive Change, a trust focused on sustainable technologies across the globe, suggest that it is tricky to deal with Saba.
The trust moved to satisfy Saba’s demand for a cash exit, but it made no difference, and attacks continued.
In an uncompromising response, Brade says she is ‘appalled’ by the way in which Saba is trampling over governance and retail investors.
She and other trust bosses fear that retail investors will fail to exercise their voting rights, leaving Saba to plunder investment legacies.
There has been a tendency among fund managers to run investment trusts as fiefdoms. Boards are drawn from a narrow range of directors who are known quantities.
Years ago, I was interviewed to become a non-executive at a well-established trust. Despite making a pledge to recuse myself from any discussion of the trust involved on these pages, it was decided, after due diligence, that it wasn’t a good idea.
Later, I was informed by my proposer that some of my views (such as those against foreign takeovers) did not fit.
One can understand why retail investors might be nervous about investment trusts.
When disgraced fund manager Neil Woodford launched his Patient Capital Trust in June 2018 retail investors – who took a long view – rushed at the chance of being in on the ground floor of a trust buying into new pharma, biotech, fintech and other cutting-edge activities.
When the value of Woodford’s flagship Equity Income Fund collapsed, he used Patient Capital as a dumping ground for illiquid holdings.
The trust was ‘rescued’ by Schroders and renamed UK Public Private Trust. Abysmal performance continues. The shares stand at 20p against a launch price of £1 and Schroders reportedly is preparing to liquidate.
Some trusts among the £3.4billion Saba seven have outperformed the market and sought to fix problems after receiving Saba’s attention. All the trusts concerned need to look at their board structure, cost management and performance.
Weinstein’s attempt to insert the same ticket of directors on the boards of the seven trusts and displace existing managers is morally wrong, incestuous and should be unacceptable to regulators.
Institutional and retail investors must kill the assault.
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