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.”

The AIC voiced concerns over the participation of retail investors in voting on the future of the trusts. While platforms have been supplying information on the voting to customers, the AIC called for platforms to “actively contact” clients to encourage voting and have investors automatically opted in to communications about actions within trusts.

See also: Saba’s Weinstein fights back at criticism over trust plans

Richard Stone, chief executive of the AIC, said: “Following Saba’s action, we are concerned that the current regulations do not protect the interests of retail shareholders. Saba is targeting investment trusts with a high percentage of retail investors, so it’s vital they have their say on the activist’s radical proposals to replace the board, change the investment strategy and become the investment manager.

“We are relying on platforms’ support to get this information out to their customers and encourage them to vote. Thankfully they have been broadly supportive of our call for action.”

In a presentation released by Saba, the firm outlined that if elected, it would assess options for liquidity events and appoint at least one additional independent director to the boards. In a longer-term view, Saba said it would consider ending the trusts’ current management agreements, research new managers which could include Saba and apply a similar investment strategy to the one used for Saba’s Close-End Funds ETF.

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

The AIC also called on the FCA “to urgently explain its views on the independence of directors under the Saba proposals”, and questioned how conflicts of interest would be managed if Saba won the vote and was proposed as manager.

Saba said apart from Saba founder Boaz Weinstein and Saba principal executive officer Paul Kazarian, its candidates for directors are independent. Weinstein and Kazarian have committed to recusing themselves from any votes that would involve decisions related to Saba, including a vote to appoint the company as investment manager.

“The FCA must review the scope of board independence in the Listing Rules. Saba’s campaign raises questions about the independence rules if they permit a significant shareholder, who may have a conflict of interest, to effectively select board members – particularly when those board members may go on to appoint that shareholder as the asset manager,” Stone said.

The year also saw 10 mergers of investment companies, doubling the previous record of five set in 2021. Meanwhile, five trusts were liquidated and 32 changed their fees to account for discounts.

Although discounts continued to widen, the average trust had a share price total return of 14.8% in 2024 to 6 December. The Growth Capital sector led returns 48.4% while private equity followed at 41.7%.

See also: AIC: Trust managers rate healthcare as top sector for 2025

Just two trusts, Chrysalis Investments and North American Income, opted for a change in manager for 2024.

Richard Stone, chief executive of the AIC, said: “Discounts have remained wide this year, prompting boards to take action. We’ve seen a record number of mergers, record share buybacks and 32 investment trusts have cut their fees.

“So far this century, investment trusts have weathered the financial crisis, the dotcom boom and bust and a global pandemic. As we look forward to 2025, we will continue to see the investment trust industry innovate and adapt to meet investors’ needs.”

However, when widened to a five-year view, favour tipped towards information technology, attracting 28% of managers, while a fifth of fund managers believed the energy sector would top the charts.

Annabel Brodie-Smith, communications director at the AIC, said: “With ageing populations, the rising demand for cancer cures, Alzheimer’s treatments and weight loss wonder drugs, it is no surprise that investment trust managers have tipped healthcare to be the best performing sector of 2025. Further advances in technology via AI and robotics are likely to continue to drive rapid transformations across this sector.”

On a regional basis, 28% of managers believed the US would continue its reign as the top performer. This is followed by the UK at 24%. The AIC noted the UK has been favoured as the top performer for the next year for three years in a row now, though this bet is yet to come to fruition.

Despite a tough period for the UK, 44% of investment trust mangers believe the FTSE 100 will climb above 8,500 in 2025. But predictions remain polarised, with another 36% believing it will fall below 8,000.

See also: AIC: Interest in ESG investing falls for third year running

Alex Wright, portfolio manager of Fidelity Special Values, said: “Although the UK market continues to remain largely unloved by domestic investors, its attractive valuations are being recognised by other market participants such as overseas corporates and private equity firms. Underlining this interest has been a sharp spike in M&A activity, which typically benefits us given our focus on attractively valued businesses.

“Other supportive dynamics include a more stable domestic political situation given the new government’s large majority, attractive dividends in a global context and the fact that a record number of UK companies are buying back their own shares. Despite this, and given the relatively robust performance of UK companies, it has been a surprise that we have not started to see the valuation gap between the UK and other global markets close.”

In comparison, 64% of fund managers believe global stock markets will rise in 2025, with just 25% claiming they will fall.

See also: AIC: More wealth managers willing to go off buy list for investment trusts

Brodie-Smith said: “After a turbulent year of elections, it’s encouraging to hear managers are optimistic about the prospects for global stock markets in 2025 with nearly two-thirds expecting them to rise despite persistent worries about inflation.

“As always, it’s important for investors to focus on creating a balanced long-term portfolio which meets their needs – with the help of a financial adviser if necessary.”

The most prominent risk equity investors identified for 2025 was inflation, named by nearly a quarter of managers. This comes despite a calming of inflation in 2024 that allowed the Bank of England, the Federal Reserve, and the European Central Bank to lower interest rates throughout the year.

Still, 84% of fund managers believe inflation in the UK will remain above the 2% goal, and just 8% believe the BoE will cut interest rates to below 3%.

Thomas Moore, fund manager of abrdn Equity Income Trust, said: “Wild macro gyrations have made 2024 a boomerang year. We have remained alert to opportunities through the year. Most recently, we have identified beneficiaries of the ‘higher for longer’ rates environment in the form of financial companies whose interest income will remain elevated.

“Trump’s victory should drive an acceleration in US economic growth as businesses respond positively to deregulation and the reduced cost of energy resulting from a policy of ‘drill, baby, drill’. This could shift the debate in Europe, as it becomes more apparent that a more pro-business approach will be necessary to allow European companies to compete.”

The trust was launched in 2020 and invests in social organisations and charities for people in need across the UK. In the past three years, Schroder Social Impact has lost 18.2% on its share price total return, compared to a sector average loss of 4.9%, according to the Association of Investment Companies. It currently trades at a 22.7% discount.

Currently, the trust has £84.1m in total assets, with its top holdings including a charity bond portfolio, Bridges Evergreen Holdings, and the UK Affordable Housing fund.

The FCA is offering four labels in total under its new regime, including Sustainability Focus, Improvers, Impact or Mixed Goals, designed to create a clearer categorisation of a fund’s goals. However, the system has faced some pushback within the industry, with some funds experiencing difficulty in adopting funds to fit the label, despite having a sustainable aim. The BlackRock Sustainable American Income trust opted to drop “Sustainable” from its name instead of applying for the label.

See also: ‘SDR implementation is far more challenging than we ever anticipated’

Susannah Nicklin, chair of the board, said: “On behalf of the Social Impact Trust Board, I am delighted to announce that today the Company is adopting the ‘Sustainability Impact’ label introduced as part of the FCA’s Sustainability Disclosure Requirements. We believe that we are one of the first investment trusts to adopt this label since its introduction. By applying the label, we aim to demonstrate to investors both the rigour of our impact practice and our commitment to transparency.”

Portfolio manager Hermina Popa added: “The Social Impact Trust remains deeply committed to making investments targeting the reduction of poverty and inequality. We are proud to have helped positively impact thousands of people while delivering over £200 million in benefits for the public through savings to government and households since inception. We look forward to continuing our work delivering measurable social impact for disadvantaged people across the UK.”

In a stock exchange announcement this morning (4 November), the board said that it had been notified by investment manager Weiss Asset Management that it believes the opportunity set for the fund continuing in its current form is “less attractive than it has been in the past”, and that it does not think it is likely to improve in the foreseeable future.

See also: CRUX’s Richard Penny joins Oberon Investments

In response, the board has launched a strategic review to consider the future of the company.

The trust, which invests primarily in listed South Korean companies, was first launched in 2013.

According to the Association of Investment Companies, the trust currently trades at a 1.36% premium to its net asset value.

The percentage of respondents considering ESG when investing is now 48%, marking a third successive drop from 66% in 2021, 60% in 2022 and 53% in 2023.

Some 43% consider themselves “fans” of ESG investing, down from 60% in 2021, 51% in 2022 and 50% in 2023.

Meanwhile, just 17% of respondents feel that ESG investing is likely to improve performance, down from 22% last year.

The study was conducted for the AIC by Research in Finance.

Nick Britton, research director of the AIC, said: “Our ESG Attitudes Tracker shows that investors’ love affair with ESG investing continues to cool. That doesn’t mean they reject it altogether though.

“To extend the metaphor, they are thinking about the bits of ESG they like and those they don’t, and deciding if they want to make this a longer-term relationship.”

See also: Home Reit reveals £475m loss in overdue annual results

Greater focus on governance

There has also been a marked shift in attention towards governance. While environmental issues have traditionally dominated investor interest in ESG as a whole, 37% of investors consider governance to be important.  

Transparency and disclosure was also flagged as the most considered ESG issue, with 60% of respondents finding it important to consider when investing – higher than in any previous year.

Climate change fell to second place, being important to 54% of respondents, ahead of pollution (47%), and human rights (44%).

Previous iterations of the ESG Attitudes Tracker have revealed low levels of trust in ESG claims from funds and concerns about greenwashing. While the issues have not gone away, there are signs that they are not getting worse.

The number of respondents who are not convinced by ESG claims from funds dropped slightly to 61% from 63% last year.

See also: Keir Starmer: ‘We will rip up the bureaucracy that blocks investment’

Meanwhile, two-thirds (67%) said they were concerned about greenwashing, similar to last year (68%).

Britton added: “One interesting aspect of this year’s research is that almost all the governance issues have increased in importance for investors. Investors are increasingly savvy and recognise that governance is the bedrock of ESG investing: put another way, you need the G before you can have the E and the S.

“Though passions for ESG may have cooled, our research also suggests that love has not turned to hate. Few investors are actively hostile to ESG: for those who aren’t so engaged, it would be more accurate to describe them as sceptical, uninterested, or prioritising investment performance over ESG issues.”

A draft Statutory Instrument published earlier this week (7 October) absolves investment trusts from producing KIDs and from publishing ongoing costs, as required by open-ended funds.

See also: Investment Association updates executive pay guidelines

Previously, closed-ended funds were required to produce KIDs in the same way that open-ended funds are. However, this forced investment trusts to effectively ‘double-count’ their costs as shares are already bought at market price on the stockmarket.

The AIC said the draft explicitly excludes VCTs despite previous assurances from the Treasury they would be included.

Richard Stone (pictured), chief executive of the AIC, said the association was “surprised and disappointed” to learn that VCTs were excluded from the legislation.

“It is now widely accepted that cost disclosures mandated by PRIIPs and MiFID are misleading – and they are misleading for VCTs as well as for investment trusts. There is no logical basis on which they have been singled out for exclusion from this exemption.

“We are engaging with the Treasury to understand why this has happened and will be pressing for the legislation to be amended to include VCTs, which have such an important role in backing up-and-coming UK companies.”

Investors are missing a beat by overlooking the top-returning asset class, according to Global Managed Portfolio Trust manager Peter Hewitt. “When you speak to people about private equity trusts their eyes begin to glaze over,” he says. “They’re not as easy to sell as equity trusts, but I think that’s a missed opportunity.”

Private equity trusts are not as easy to understand as those investing in listed stocks, but investors need only look at the asset class’s returns to see the appeal. Some of the biggest names in the sector such as 3i Group, HG Capital and Oakley Capital are up a colossal 1,069.7%, 573.8% and 272.3%, respectively, during the past 10 years, outperforming not only the majority of trusts, but most open-ended funds, too.

And this outperformance is only expected to continue. Research from the Amundi Investment Institute forecasts private equity to deliver annualised returns of 8.2% over the next decade – the highest of any other asset class.

Fee-fi-fo-fum

So why have retail investors ignored these portfolio boosters? High fees may be the answer. The average private equity trust charges investors an ongoing fee of 1.8%, which is much higher than those investing in equities – especially passive vehicles. While this is less than ideal, Hewitt says their considerably higher returns make the loftier charges worthwhile.

“They do charge very high fees, but at the same time it’s much more costly to run a private equity trust than it is to run one that invests in listed equities – and their track records are phenomenal. You just need to look at the likes of Pantheon, HG Capital and Oakley, and they’re some of the best performers in the investment company sector. In fact, they’re some of the best performers on the London stockmarket, full stop,” he says.

Annabel Brodie-Smith, communications director of the Association of Investment Companies (AIC), points out that private equity trusts require much more specialist knowledge and thorough research compared with listed equity portfolios due to the opaque nature of the asset class.

However, these already-high fees are made to look worse by misleading cost disclosure rules, which double-count and artificially inflate costs. Resolving the deceptive regulation is a top priority for the AIC, which has already been lobbying the new Labour government for a solution, and has had meetings with economic secretary Tulip Siddiq.

Brodie-Smith notes the current cost disclosure rules are most detrimental to wealth managers and fund of funds, deterring them from allocating as much to private equity trusts as they might like. This view is echoed by Hewitt, who says keeping fees low is front of mind for many wealth managers – hence their avoidance of expensive trusts.

“If you’re a wealth manager, you might want to put your client into HG Capital, but you have your own costs to think about. The underlying costs on private equity trusts are horrendous, and you’re upping your own fees massively before you’ve even started,” he says.

“If you want lower costs, you can go down the ETF route of course, but just look at the performance of private equity. Now, I wish the costs were lower, too, but over the long run that’s where you make a lot of money because they’re exposed to phenomenally attractive assets that are growing.”

Read the rest of this article in the September issue of Portfolio Adviser magazine

The new framework will aim to deliver “more tailored and flexible rules which will address concerns across industry with current disclosure requirements”, according to the FCA release. Under the PRIIPs framework, investment trusts must disclose costs in the same way as open-ended funds. However, because investment trusts have both a NAV and a share price as a listed company, this causes a misrepresentation of the price as fees are applied to the share price instead of the NAV.

The FCA will hold a consultation on its proposed CCI regulation this autumn, with a goal of allowing for more “bespoke arrangements” to address sector concerns.

The proposal follows outcry across the investment trust industry for a change in regulation including the introduction of a bill in the House of Lords. Baroness Sharon Bowles, who has led a campaign against the current system for cost disclosure, read The Listed Investment Companies Bill in the House of Lords on 5 September. The bill was designed to deduct charges from the trust’s net asset value instead of it’s share price.

Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “It’s good that the Treasury and FCA have recognised that the current cost disclosure regime is not working. The AIC has lobbied tirelessly on this issue and it’s encouraging that the Labour government has acted so swiftly.

“We look forward to working with the FCA as it consults on the new Consumer Composite Investments (CCI) regime. It’s vital that these new rules recognise the unique characteristics of investment companies, permanently end misleading cost disclosures which distort the market, and enable investors to make better informed decisions.”

See also: Investment trust industry calls on Labour to resolve cost disclosure issue

For the first time on record, investment trusts are on track for a three-year span of no primary capital raise, according to research by abrdn. The lack of fundraising reflects the interest rate environment as well as the effect of the current cost disclosure arrangement on the industry, abrdn concluded.

Christian Pittard, head of closed-end funds at abrdn, said: “The new Government has made boosting economic growth – by channelling capital into areas like renewable energy and infrastructure– its raison d’etre.

“These funds already invest billions into these areas – delivering crucial economic growth projects. However, cost disclosure rules, which have amounted to a distortive “double counting” of costs, have negatively impacted investor sentiment, therefore choking flows into investment trusts. They have been a key cause of these three lost years of infrastructure investment.”

The announcement from the FCA recognised the role of investment trusts in the UK, representing over 30% of the FTSE 250 and investing in £260bn in assets, and called the sector a “valuable source of investment funding to both conventional and emerging asset classes”.

Ryan Hughes, interim AJ Bell Investments managing director, said the FCA’s move today will be “warmly welcomed” by the investment trust industry as well as the broader market.

“Investment trusts play a hugely important role both in the financial services sector and the wider economy as a provider of capital and the unintended consequences of the current legislation created an unequal playing field that put investment trusts at a disadvantage and threatened, in some cases, their very existence,” Hughes said.

“The removal of this unnecessary barrier will help the investment trusts sector regain its footing and allow them to compete equally against other investment structures, which will put them back on the radar for investors who have been reluctant to use them given the cost disclosure requirements.

“At a time when the government is looking to encourage investment in the UK and to encourage private capital to drive economic growth, the removal of any barriers that could hold this back should be viewed positively.”

The trust’s total return is down almost 40% over three years, according to FE FundInfo data.

In a stock exchange announcement, the Baillie Gifford trust’s board said it believes action to address the size of the trust, the low liquidity in its shares and its discount would be in the best interests of shareholders.

See also: AIC tables proposal for partnership with National Wealth Fund

The board will consult with shareholders on options for the trust, including a rollover into the £1.8bn Baillie Gifford Positive Change fund.

It added that any proposal would include a cash exit option. The trust would also need to take into account the illiquidity of its five private investments, which comprise 4.3% of the portfolio at the end of August.

While the open-ended Positive Change fund has also been hit by a tough period for performance over three years, down 28.7%, it is a top quartile performer in the IA Global sector over five years.

The two funds seek to generate long-term returns while contributing towards a more sustainable and inclusive world.

Keystone currently trades at a 7.4% discount to its net asset value, according to the Association of Investment Companies.