65.1% of the total votes cast were against the eight requisitioned resolutions, which would have seen the trust’s board replaced by Saba’s nominees if passed.

A majority of the trust’s total shares with voting rights participated in the vote.

PA Events: PA Live: A World Of Higher Inflation 2025

In a stock exchange announcement, the board said only a further 59,221 non-Saba shares, representing just 0.15% of the votes cast, voted in favour of the resolution.

Saba’s shares represented 34.75% of the total votes cast.

Andrew Joy, chair of Herald Investment Trust, said the result provides a “clear, complete and incontrovertible rebuttal” of Saba’s proposals.

“The votes against Saba’s proposals were supported by independent proxy advisers including Glass Lewis and ISS. It is perfectly clear that the reason Saba’s proposals were rejected is that they were intended to lead to an outcome, namely Saba managing Herald, which the existing shareholders were simply not interested in.

“The reason shareholders invested, and continue to invest, in Herald is for long-term capital appreciation through investing in smaller technology companies, and they do not wish to be deprived of the opportunity to enjoy more of the same. They did not invest in Herald to become part of a short-term trading strategy.”

See also: BlackRock enters pact with Saba to ‘not seek to control or influence the board’

Following the vote, Saba’s Boaz Weinstein said he had been encouraged by the “thoughtful engagement” from fellow Herald shareholders in recent weeks.

“Over a brief period, our campaign has already enhanced value for shareholders and incited positive change at HRI – and elsewhere in the U.K. market – as evidenced by discounts to net asset value narrowing and numerous trusts announcing shareholder-friendly actions.”

He added that Saba would continue to pursue changes it believes are necessary to improve the trust.

“Saba remains committed to putting shareholders’ interests first, delivering returns for UK trust investors and ultimately rehabilitating this broken sector. We urge shareholders of the six other trusts at which we have requisitioned General Meetings to support Saba’s resolutions in order to set these trusts on the path to meaningful value creation.”

‘Victory for shareholder democracy

Reacting to the outcome, Richard Stone, chief executive of the Association of Investment Companies, said: “It’s very encouraging to see Herald shareholders turn out to vote in such numbers.

“This is a victory for shareholder democracy. There are six other trusts with votes just around the corner. It’s vital that all shareholders vote on the future of their investment trust. Shareholders need to act now.”

Voting on similar proposals for the six other trusts requisitioned by Saba will take place over the coming weeks.

Baillie Gifford US Growth and Keystone Positive Change will vote on 3 February, a day before CQS Natural Resources Growth & Income and Henderson Opportunities Trust.

The European Smaller Companies Trust meeting is scheduled for 5 February, before Edinburgh Worldwide shareholders vote on 14 February.

BlackRock gained assurances from Saba that it would “not engage in any takeover offer”, “seek to control or influence the board”, or “seek to change the composition of the board”.

Trusts that made this pact with Saba include BlackRock’s World Mining, Smaller Companies, Energy and Resources Income, and American Income trusts. It will be in effect until 31 August 2027.

BlackRock reached these agreements despite noting that “Saba does not hold any interests in the issued share capital” of any trust.

Yet it may be an effort to protect itself in case Saba attempts to oust and replace its boards, as it has attempted with Keystone Positive Change, Baillie Gifford US Growth, Edinburgh Worldwide, Henderson Opportunities, and CQS Natural Resources Growth and Income, Herald, and European Smaller Companies.

Each of these trusts has urged shareholders to vote against Saba’s proposals, expressing that they are self-serving and are seeking to take effective control of each company.

Keystone’s chair Karen Brade said she was “appalled by Saba’s actions and conduct”.

“Be under no illusion – we believe this US hedge fund manager is acting opportunistically, seeking to seize control of the board without a controlling shareholding, to pursue its own agenda,” she added.

The Association of Investment Companies (AIC) and Edison have gone a step further, raising their concerns directly with the Financial Conduct Authority (FCA) that Saba’s plans are in breach of the UK Corporate Governance Code.

They argue that Saba’s appointment of its own candidates would break rules protecting board independence.

In its governance code, the City watchdog deems a director biased if they “represent a significant shareholder” or have “a material business relationship with the company” – two factors that could work against Saba, considering it owns between 19% to 29% of the shares in each trust.

Analysts at Edison added: “A scenario in which an activist hedge fund is a significant shareholder driving the replacement of the current boards with its proposed directors, and subsequently appointed as the trust’s investment manager, creates a conflict of interest, especially when setting the terms of the management agreement.”

Over the past year, the US hedge fund has built large positions in Baillie Gifford US Growth; CQS Natural Resources Growth & Income; Edinburgh Worldwide; European Smaller Companies; Henderson Opportunities trust; Herald and Keystone Positive Change investment trusts.

Votes will be held in the coming weeks over Saba’s proposal to replace the boards of each trust with its own directors.

See also: Home REIT publishes overdue 2023 results as board steps down

In a webinar held today (14 January), the Saba Capital founder said that if the firm is successful in replacing the current boards, Saba would seek to merge either some or all of the trusts into a new listed vehicle and invest back into UK assets.

“If we’re given the opportunity, we would launch this Saba product that I think the UK sorely needs, given how every institution has been a seller,” said Weinstein.

“We are the white knight of the UK market. Everyone is a seller, we are a buyer.”

He added: “We are here to not just buy your trusts, we are here to buy billions more and rehabilitate this broken set of trusts and what is – in some ways – a broken industry that hasn’t been able to grow.”

He also took aim at the current boards of the seven trusts, criticising them for poor performance and having a lack of ‘skin in the game’.

Speaking to investors, Weinstein added: “This discount is not some ephemeral thing. It is costing ‘mom and pop’ investors in these trusts enormous amounts of money year in and year out. We are on the same side as you. We are invested alongside of you.”

Meanwhile, he also claimed that Saba’s action has already generated returns for investors with discounts narrowing over the last month.

“My prediction is in the coming three months, many of the trusts that Saba holds will announce shareholder friendly actions that will make you additional hundreds of millions of pounds that you would not otherwise have made because they want to head us off at the pass.

“The entire UK closed-end fund space in general will see smaller discounts, especially if we win and we have this fire power to buy up UK trusts. We’re talking about 83.3% invested outside of the UK that we may bring up to 100% invested in the UK.”

He also criticised aspects of the coverage of Saba’s plans, claiming that information provided by trust boards to shareholders comparing the performance of Saba’s own funds was “blatantly incorrect”.

See also: Update: Saba plans full cash exit option for Herald

Board independence

A large part of the concerns over Saba’s plans has been over the independence of boards, given that Saba is aiming to replace each trust’s board with directors who would be affiliated with Saba.

However, he said that having just two board members would be a temporary measure, with independent NEDs being appointed later on.

Reacting to the webinar, Laith Khalaf, head of investment analysis, AJ Bell, said that if Saba wins some of the forthcoming votes, the investment trust industry may have to prepare for more of the same.

“Whatever the results of the upcoming shareholder votes it will be interesting to see if the arrival of Saba prompts investment trust boards to take more measures to address large discounts,” he said.

“Shareholders will soon get the final say on whether Saba carries the day or not. Investors in each trust need to carefully examine the options and arguments laid out before them, both by Saba and the existing board, before coming to a decision and voting their shares.

The first vote will take place on 22 January, where Herald investors will have the opportunity to either back Saba or the current board.

Net asset value fell to £216.9m from £345.9m over the financial year, which came largely due to a £71.4m decrease in the fair value of investment properties.

The overall loss before tax for the year to 31 August 2023 amounts to £118.2m.

Following the publication of the overdue results, board members Peter Cardwell, Lynne Fennah, Simon Moore and Marlene Wood have all stepped down from the board.

The trust’s shares have remained suspended since early 2023, after it was unable to publish its results for the 2022 financial year on time.

See also: Home REIT repays Scottish Widows loan

Michael O’Donnell, chair of Home REIT, said: “The publication of the 2023 Annual Report and Accounts is a further positive step toward the relisting of the company’s shares.

“We remain focused on optimising the value of the portfolio and maximising returns to shareholders, while keeping disruption to underlying residents to a minimum, in line with the company’s Managed Wind-Down strategy.

“The company has made significant progress in recent months, with debt now fully repaid and the remaining portfolio launched for sale. I would like to once again thank shareholders for their ongoing patience as we continue to work towards the resolution of the remaining challenges facing the company.”

Since August 2023, the trust has sold or exchanged on the sale of 1,622 of its properties in a bid to pay down its borrowings, raising £244.1m.

As part of the firm’s managed wind down process, its remaining property portfolio of 851 assets is currently being marketed for sale, being independently valued in excess of £175m.

Home REIT has received a pre-action letter from Harcus Parker on behalf of a group of shareholders in the trust.

The trust’s board said it intends to “vigorously” defend itself in respect of the threatened litigation and has denied the allegations made against it.

Meanwhile, it reaffirmed its intention to bring legal proceedings against its former investment adviser, having issued pre-action letters last year to Alvarium Fund Managers (UK) Limited and AlTi RE Limited on 12 April 2024 and to Alvarium Home REIT Advisors Limited.

US-based hedge fund Saba Capital is attempting to take ownership of seven UK investment trusts in total that it currently owns shares in, including Keystone Positive Change, Henderson Opportunities Trust and Baillie Gifford US Growth.

Plans put forward by Saba, which was founded by its CIO Boaz Weinstein in 2009, would see the trusts’ independent boards replaced by two new directors, as well as a change to the companies’ mandates and investment managers.

See also: Update: Saba plans full cash exit option for Herald

According to a London Stock Exchange announcement published today (14 January), ISS has stated that Saba “has not presented a compelling case for change, let alone a case for a majority position on the board and a strategy overhaul” ahead of Herald’s general meeting. It has therefore recommended that shareholders vote against the requisitioned solutions at the meeting, which will take place at midday at 10-11 Charterhouse Square in London.

The recommendation follows a circular published by Herald investment trust on 3 January this year, whereby the board unanimously recommended that shareholders vote against Saba’s attempted takeover.

Andrew Joy, chair of Herald investment trust, said: “The board of Herald welcomes and is encouraged by the recommendation from ISS for shareholders to vote against the requisitioned resolutions proposed by Saba on 22 January 2025. The recommendation supports our belief that the proposals from Saba are not in the best interests of all shareholders, and we strongly urge all shareholders to vote against the requisitioned resolutions proposed.”

The Herald investment trust is the first company to have scheduled a meeting for shareholders to vote on the proposals, with a majority of the other trusts scheduling meetings during the first week of February.

Herald hits back at performance claims

In a separate LSE announcement this morning, Herald investment trust’s board has responded to Saba’s claims that its strong performance track record justifies its desire to take over the trust.

See also: Saba Capital launches campaign to replace seven investment trust boards

According to Herald, the trust has “materially outperformed” the Saba Capital Master Fund – the US firm’s flagship product – since its launch in August 2009 – on both an annualised and cumulative basis.

“The board believes that the Saba Master Fund has delivered an annualised net return of approximately 4.8% from 1 August 2009 to 7 June 2024 (being the latest date to which its performance data is available from public sources), implying a cumulative return of approximately 99.5% (in each case calculated in USD, the Saba Master Fund’s base currency),” it said. “In direct contrast, Herald’s annualised NAV total return over the same period was 14.1%, or a cumulative return of 611.4% (in each case calculated in GBP, Herald’s base currency).”

“Furthermore, the reported discrete annual returns for the Saba Master Fund raise questions regarding the potential volatility of Saba’s strategy. For the 13 years that annual performance data is available publicly from third party sources and press articles (2010 to 2023 inclusive, with the exception of 2017. Only cumulative or partial data is available for 2009, 2017 and 2024), the Saba Master Fund delivered negative annual performance in six of the 13 years according to such sources.

“Over the same period, Herald’s discrete annual NAV total return was negative in only three years.”

See also: Baillie Gifford: ‘We are appalled by Saba’s actions and conduct’

Therefore, Herald’s board does not believe that appointing Saba to take over the trust would be in the best interests of shareholders, adding that the firm wants to take control of the trust, “in part, add to its own assets under management”.

“Saba’s proposals, which lack any meaningful detail apart from the intention to appoint itself as manager, fundamentally change the company’s investment strategy and offer an uncapped cash exit on uncertain terms, risk significant value destruction for shareholders and are the anthesis of the company’s successful long-term investment approach.”

Herald’s board added: “The board believes that Saba’s proposals are designed for its own economic benefit and will be to the detriment of those shareholders who wish to remain invested in a proven strategy which has delivered a 27x NAV total return since the first day of dealings.”

Last September, the trust’s board set out proposals to fold the trust into the open-ended Baillie Gifford Positive Change fund following a challenging period for performance.

Shareholders were due to vote on the proposals in February. However, it has been postponed until after the outcome of Saba’s requisitioned general meeting.

See also: Update: Saba plans full cash exit option for Herald

Karen Brade, chair of Keystone Positive Change, said due to the size of Saba’s holding in the trust, the board’s proposals for the trust’s future were guaranteed to be voted down.

The requisitioned meeting, at which shareholders will vote on replacing the current board with Saba’s nominations, will take place on 3 February.

Voting on the proposals closes at 12pm on 30 January, or as early as 23 January if invested through a platform.

Keystone has urged its shareholders to vote against Saba’s proposals.

“Unfortunately, Saba waited until 18 December to requisition a general meeting to remove your independent Board and formally inform us that it intends to vote against the scheme, which would guarantee its failure,” Brade said.

“This destructive behaviour highlights just how disingenuous Saba has been and demonstrates its desire to take control of your company.

“In light of Saba’s current voting intentions, the board has decided it is in the best interests of all shareholders to adjourn the scheme meetings to a later date.”

The 100% cash exit would come at 99% of the trust’s total net asset value, which currently sits at £2.5bn.

In a statement, Saba said the cash exit would be overseen by a fully independent board, which would not expect it to occur for at least a year.

The plans to offer a full cash exit come in response to shareholder feedback, the firm said.

The requisitioned general meeting, at which Herald investors will vote on Saba’s proposal to replace the board with their own nominees, will take place on 22 January.

See also: Trusts targeted by Saba campaign urge shareholders ‘take no action’

Herald responds

The Herald board responded to Saba’s announcement, noting that Saba is not proposing to offer 99% of the value of today’s net asset value.

“Instead Saba is proposing an exit after ‘at least a year’ during which open-ended time period significant value could be lost from the underlying portfolio in anticipation or consequence of Saba’s known selling appetite,” the board said in a stock exchange announcement.

They added that the board has engaged with “many shareholders”, who they say have not expressed a wish for Saba to take over the management of the company.

Andrew Joy, Herald chair, said: “Herald has delivered strong investment performance. Since the first day of dealings (21 February 1994) the Company has delivered a 27x NAV total return.

“In direct contrast to Saba’s promise of the “opportunity for greater long-term returns under a new investment strategy”, the Herald Board does not believe that Saba’s long term performance track record supports this.”

See also: IA: UK reinvests in November following two months of exits

Reacting to both announcements, QuotedData head of investment company research James Carthew said that the Herald board’s argument is “straightforward”.

“More worrying to us is the tortured logic in Saba’s statement in which it claims to know what an independent board would do at some point in the future, clearly implying that it believes that it can direct the board’s actions. We cannot get our heads around how a board consisting of Saba employees, Saba appointees, and persons that these Saba-connected directors later co-opt onto the board could ever be construed as independent.

“We iterate our belief that investors should not surrender control of these trusts to this vulture investor. Furthermore, if Saba does seize control and seeks to impose its particular investment approach on the portfolio, investors should be given an exit at NAV, not at a 1% discount.”

In a stock exchange announcement this morning (2 January), the two parties said they had reached a confidential settlement without any admission of liability. Chrysalis had previously alleged Revolution had provided misleading information during its period as a shareholder.

Last February, Chrysalis outlined ‘potential claims’ against Revolution Beauty under the UK financial services & markets act.

See also: Chrysalis preps for £100m share buyback with new loan

Chrysalis, which invests in later-stage private equity firms, bought £45m worth of Revolution shares in July 2021.

The investment trust took heavy losses on its stake, selling its position for £5.7m in late 2022.

The investment trust’s claim centred around information provided by Revolution during Chrysalis’s time as a shareholder, which it said contained ‘misstatements and material omissions’.

Revolution strongly contested those claims.

The Revolution board said it had agreed to pay Chrysalis a ‘non-material sum’, believed to be less than 1% of Chrysalis’s £613m market cap.

According to the AIC, Chrysalis shares currently trade at a -23.6% discount to NAV.

The US activist investor said yesterday (18 December) that it intends to improve poor performance and narrow wide discounts on seven trusts it has stakes in by removing each of their boards.

“We believe the current boards of directors and investment managers have failed to perform versus their benchmarks and have, therefore, required Saba’s investment to narrow the deep trading discounts to net asset value and deliver returns for shareholders,” Saba said.

In response, the boards of Keystone Positive Change, Baillie Gifford US Growth, Edinburgh Worldwide, Henderson Opportunities, and CQS Natural Resources Growth & Income trusts advised their shareholders to ‘take no action’ in votes Saba intends to hold at general meetings next year.

Herald issued no response, while European Smaller Companies acknowledged Saba’s requisition notice but made no recommendation to shareholders.

Performance has suffered and discounts have widened on each of these trusts – which Saba owns between 19 to 29% of the shares in – but QuotedData’s head of investment company research James Carthew said the proposed action is not in the best interest of shareholders.

“Saba’s attack on the UK investment companies industry is entirely self-serving,” he said. “It aims to seize control of these funds to impose its own agenda, book a short-term profit on its investment and then – we suspect – extract management fees from a strategy that investors have shown no appetite for.”

The £117m trust’s portfolio will be run by Mark Niznik and Will Tamworth, who have co-managed the Artemis UK Smaller Companies fund for the last eight years.

The Artemis strategy is ranked top quartile over three, five and 10 years relative to its IA UK Smaller Companies peer group.

As a result of the appointment, the trust’s board has served notice to Invesco Fund Managers that it intends to terminate their appointment as investment manager.

The trust will be renamed following Artemis’s appointment, though the board said there would be no change to the trust’s investment objective, investment policy or dividend policy.

Artemis CIO Paras Anand said: “We are very grateful to the trust’s board for this opportunity. Well-run investment trusts can deliver outstanding outcomes for shareholders and are particularly suited to asset classes such as UK small caps, where the team can access a broad range of exceptional investments.”

As part of the arrangement, Artemis will charge a management fee of 0.65% of net assets up to £50m and 0.55% thereafter. Artemis will waive the first nine months of management fees following its appointment.

The agreement will come into effect in Q1 of 2025, subject to regulatory approval.

The US hedge fund has requisitioned the boards of Baillie Gifford US Growth Trust, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment Trust, European Smaller Companies Trust, Henderson Opportunities Trust, Herald Investment Trust and Keystone Positive Change Investment Trust.

Saba, which owns 19-29% shares in each trust, is seeking to replace the boards of each trust. The activist investor said that it believes new boards are necessary to narrow discounts and correct underperformance.

See also: Saba Capital and its intentions for the UK investment trust industry

Boaz Weinstein, founder & CIO of Saba Capital, said in an open letter to shareholders: “Performance demonstrates that they have not taken sufficient steps to resolve the trusts’ structural issues, depriving shareholders of superior returns. While there are multiple levers to narrow these persistent discounts, inaction has been the consistent course of current leadership.”

At each meeting, which Saba said would be scheduled by early February, shareholders of the trusts will vote on removing all current directors of each trust and replacing them with new candidates.

If appointed, Weinstein said the new directors would assess all options available to the trusts, including terminating the trusts’ current investment management agreements and potential combinations with other investment trusts.

Reaction

Saba has been building its positions in investment trusts over the last two years and, after a long wait, it has finally publicly declared its intentions.

Stifel analyst Iain Scouller said: “Overall, we think it is helpful for the sector to have Saba’s game plan revealed and shareholders and boards can now take positions for or against these proposals. We also think given Saba’s significant voting power by the virtue of the size of their stakes, that they will be successful in changing the boards of a number of the trusts involved.

“We think it is now over to the boards of the Trusts to argue why Saba’s proposals should not be supported – they will need to come up with some strong counter-proposals themselves.”

Matthew Read, senior analyst at QuotedData, said that while clarity on Saba’s interests in the sector was welcome, he argues there is an ‘obvious flaw’ in their strategy.

“Saba wants shareholders to replace the current boards and deliver on its plan to ‘quickly deliver substantial liquidity and long-term returns for all shareholders’.

“However, those two are often mutually incompatible, particularly for some of the funds it is targeting where the underlying holdings are less liquid – Herald being the obvious example as it is a big fund with a huge tail of small illiquid positions that trade by appointment that could take years to sell off and you would likely move the market against you in many of these, particularly once the market spots you as a forced seller.”

See also: How do asset managers logistically prepare for major events?

He added that the call for substantial liquidity also ignores the unquoted positions held by trusts such as Baillie Gifford US Growth and Edinburgh Worldwide, while Read questions the logic behind targeting Keystone Positive Change, which is considering folding into its open-ended sister fund.

“This and the other challenges we highlighted above have long made us feel that Saba doesn’t really understand some of the funds that it is invested in,” Read added.

“It is well-documented that Saba has been successful with similar attacks in the US but the UK closed end fund market is fundamentally different. Standards of corporate governance are higher, and returns have generally been better, so this sort of approach makes less sense, particularly now that progress has been made on addressing problems such as the cost-disclosure issues and so discounts are now retrenching.

“It seems to us that their approach is very short-term in nature and this highlights a long running issue that, because many retail investors hold their shareholdings through platforms and do not tend to vote, that large professional investors get a disproportionate amount of the vote.

“This can lead to outcomes that are not in the interests of all shareholders and so we think that it is all the more important that shareholders in these funds make sure their interests are being protected and that they make sure they get out and vote.”

Yet the £13bn company came roaring back in November after its share price soared 35% throughout the month.

The 2024 results it released in November revealed a 9% increase in revenue throughout the financial year to £2.2bn, which markets responded to positively.

Before then, Sage’s poor performance had dragged Train’s Finsbury Growth and Income Trust down this year, with the £1.4bn portfolio falling 0.2% in 2024 up until October – significantly lower than the 7.7% return made by his peers in the IT UK Equity Income sector.

See also: Nick Train’s FGT holds onto Burberry despite 70% price fall

But the positive financial statement from Sage – Train’s second largest holding, worth 12.9% of all assets – bolstered the trust in November. It has now delivered shareholders a total return of 6.5% since the start of the year.

Sage’s shares have slumped 1.7% in December, but still sit near an all-time high. Despite this considerable re-rating, Train anticipates further growth ahead as global investors realise its full potential.

“It looks expensive by the standards of the UK stock market. However, as the company is keen to point out, it is not so expensive when compared to growing software companies listed on other stock markets,” he said.

“Sage wishes and deserves to be valued compared to a global cohort of companies, and global or US investors are as likely to determine its valuation as UK institutions.”