This week the Prime Minister was out banging the drum for an artificial intelligence (AI) revolution in Britain.
It is paradoxical that Herald Investment Trust, which prides itself on tech discovery and AI, faces an existential threat in the next few days.
It is the first of the seven quoted investment vehicles targeted by US activist Boaz Weinstein and Saba Capital to face a shareholder vote that could see the 30-year-old trust, with a stonking record of returns for investors, assaulted and dismantled.
It is not ‘jingoistic’, as Weinstein has clumsily claimed, to defend solid UK investment groups.
Several have enviable track records and are held for long-term returns. It is appalling that the defences of the trusts, against defenestration of independent boards and liquidation of growth assets, is so frail.
Neglect of the sector by regulators at the misfiring Financial Conduct Authority, and impenetrable voting barriers, are being exploited to the detriment of private investors.
Trust me: US hedge fund Saba Capital, run by the aggressive activist investor Boaz Weinstein (pictured) has set its sights on seven UK investment trusts calling for major shake-ups
For private investors in Herald, who hold their stock on platforms run by firms such as AJ Bell, Hargreaves Lansdown and smaller players, today is the last chance to save Herald by registering to vote.
Information about Saba’s intentions, as it built a 29.9 per cent stake in Herald, has been woefully poor.
Most takeovers, such as Czech billionaire Daniel Kretinsky’s battle for Royal Mail and the bid by Aviva for Direct Line, attract blazing headlines.
Investment trusts rarely get the same treatment. They are viewed as a backwater in finance and their glory, as a structure, has been displaced by open-ended unit trusts and new-fangled exchange trade funds (ETFs).
Yet investment trusts have innate advantage over rival homes for savings and pensions.
They use leverage, to boost returns, and in the manner of Herald and other trusts under siege, offer investors access to specialist sectors.
Herald’s top ten holdings, at present, include US semiconductor and robotics innovator Celestica and fast expanding tech-enabled UK consumer site Trustpilot.
As those who hold investments on platforms know, it is never easy to make a voice heard on corporate actions. Some are better than others.
Barclays Smart Investor is good at chasing holders for votes and decisions. Other are more awkward.
Requests are hidden in tricky to access parts of the website. It appears that some holders of Herald stock outrageously are required to pay fees of £30 to £40 to exercise their democratic right. Nevertheless, there is still the opportunity today to turn things around.
Those investors who hold Herald shares directly can still vote until Monday. But disenfranchisement of private investors, through neglect, apathy or little awareness is a clear danger.
It is extraordinary that Saba can use a disclosed holding of 24.5 per cent to sack a board, impose its own directors and seize management fees.
There was a time when this would not be allowed to happen. The Governor of the Bank of England would have called all parties (including the City Panel on Takeovers) and toughened defences.
The requirement of a simple majority in investment trust takeovers, as against the higher barrier of 75 per cent on many corporate actions, leaves them ridiculously vulnerable.
There are closed trusts, notably Neil Woodford’s Patient Capital (now a huge loser under Schroder management), that have been run disastrously. It became a dumping ground for unquoted holdings from Woodford’s Equity Income fund.
Others are run for the benefit of managers and a small, privileged circle of directors rather than savers. These are rogue outfits, and Herald is not among them.
Investors in the seven funds targeted have been let down by the ‘consumer duty’ requiring disclosure of fees already in the share price.
The biggest enemy is the search for safety in bonds by UK pension funds, post-Maxwell regulation and Gordon Brown’s raid on UK dividends.
Managers scoured the planet, ignoring Britain, in search of high performing equities.
The challenge of getting out the vote to defeat Saba endangers the whole sector. Pity it has taken so long for the main players and City enforcers to recognise this.
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