Wall Street carpetbagger Boaz Weinstein has suffered an early setback in his assault on seven UK investment trusts through his hedge fund Saba Capital.
His bid to oust directors of the £1.3billion Herald Investment Trust was stymied by independent investors, 99 per cent of whom voted against him on an impressively high turnout.
Weinstein may have been disabused of any idea he could achieve his ends easily by exploiting investor apathy.
But his campaign remains a wake-up call for trusts. If Weinstein succeeds – and the fight is far from over – they face an existential threat.
It is far too soon to write him off, as was demonstrated last week when he won a partial victory in a separate campaign over trusts run by US giant BlackRock.
Two more UK trusts, Keystone Positive Change and Baillie Gifford US Growth face showdowns with Weinstein on February 3. It is imperative investors cast their votes. This is not being made any easier by some investment platforms including three run by Lloyds – Scottish Widows, Entrust and Stock Trade – that are not allowing investors to vote.
Setback: Boaz Weinstein may have been disabused of any idea he could achieve his ends easily by exploiting investor apathy
The Financial Conduct Authority (FCA), which has made a mealy-mouthed move to ask platforms what they are doing to inform investors about the trust votes, needs to step in at the bank.
One lesson of this affair is that shareholder democracy is fragile.
Investment trusts have for more than a century been an excellent way for small savers to gain exposure to stock markets around the world and to more speculative unlisted ventures.
Charges are low and they are easy to trade. One downside is that many trusts have been dogged by big discounts.
These occur when the value of a trust’s shares is less than that of the assets it holds – and it is the existence of these discounts that has opened the door to the likes of Weinstein. He has spied an opportunity to acquire assets on the cheap, arguing his interests are aligned with those of other shareholders.
It is a dubious assertion. Saba’s behaviour implies a degree of contempt for its fellow investors. The candidates it put forward for the board at Herald did not even bother to turn up at the meeting last week.
Weinstein has said he wants to facilitate a cash exit at near to net asset value for investors. He has also suggested merging some trusts and targeting others that are on a big discount. Saba may also seek to take over the management of trusts. There is a lack of detail about how any of this would be achieved, the costs involved, or the implications for governance. Changing a trust’s management, for instance, normally involves a beauty parade, rather than an outfit such as Saba bulldozing in.
Whether Weinstein has responsible long-term proposals for the trusts is not clear. He has dismissed legitimate criticisms as ‘jingoistic’ but investors are entitled to be sceptical. Investment trusts, like mutual building societies and insurance companies, may look like sitting ducks but when small savers are mobilised they can see off the marauders.
Insurer LV – where members foiled a greed-fuelled effort to sell off the mutual to US private equity following a campaign in this newspaper – is a case in point.
It is heartening that Weinstein has lost his first battle, but he has stakes in another 17 trusts and does not look like a man who gives up easily.
Investors must vote at the other trusts to send him packing.
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