A spotlight will swing onto the investment trust sector on Wednesday as the first of seven shareholder meetings called by US raider Saba Capital at various different London-listed investment companies, but analysts wondered if its aggressive approach has put off investors.
Having been steadily accumulating shares of between 19% and almost 30% in the seven London-listed investment companies, the hedge fund has called meetings to replace members of the independent boards with its own nominees.
In an open letter to the shareholders of seven investment trusts, Saba called for a vote on the suitability of the trusts’ current directors, which the US firm criticised for not adequately holding their investment trust managers to account over wide share price discounts and shareholder returns.
Tomorrow's vote for Herald Investment Trust (LSE:HRI) is a key test, with the other six coming not long after for Baillie Gifford US Growth Trust, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment Trust, Henderson Opportunities Trust, Keystone Positive Change Investment Trust and the European Smaller Companies Trust.
Analysts at Stifel said: "Whilst the market's focus in the next three weeks is likely to be on the outcomes of the general meetings, we think the more important issue is what happens afterward.
"We think it is possible Saba may win the votes at two or three trusts, primarily as a result of a low turnout by the predominantly private investor base.
"However, even for the trusts that defeat Saba's proposals, this will certainly not be the end of the matter.
"Instead, it is likely to be the beginning of a longer drawnout battle as Saba will still have a substantial shareholding, in many cases close to 29.9%.
"Therefore, we think some sort of exit mechanism will be required."
Stifel said it was ironic that many of the investors complaining about wide discounts in the listed funds sector have also railed against Saba's proposals.
"However, the Saba tactics have been surprising to the extent that we think many investors are reluctant to support the proposals."
The broker said the proposals to potentially change the manager to Saba and change the trusts' investment mandates to focus on investing in other investment companies on a discount "is not something that most investors were, or are looking to switch into".
"We think if Saba had just called for conventional measures to enhance shareholder value such as tenders and aggressive buybacks, it would have had more support."
However, if Saba does not win, it might instead enact a 'plan B', said Stifel, which could see the US hedge fund make further requisitions for general meetings and call for exit mechanisms such as tender offers to be put in place.