Boaz Weinstein’s shaking up the UK’s investment trust industry – Chris Hughes

Key topics:.Boaz Weinstein pushes to overhaul UK's underperforming investment trusts.Saba Capital proposes liquidating trusts at net asset value for better returns.Critics warn about the risks, but consolidation may benefit long-term investors..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..The seventh BizNews Conference, BNC#7, is to be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events – and to interact with members of the BizNews team. Register for BNC#7 here..If you prefer WhatsApp for updates, sign up to the BizNews channel here – https://whatsapp.com/channel/0029Vb0ohuHLY6d7SuoacT2d.By Chris Hughes___STEADY_PAYWALL___.US hedge fund manager Boaz Weinstein is taking brickbats for highlighting the flaws of the UK's sleepy investment-trust industry and attempting to seize control of a bunch of its firms. But Weinstein is dangling an alternative future that some investors will value. And the industry has a case to answer..Investment trusts are publicly traded companies that typically invest their capital in stocks and sometimes private companies. Shareholders of the trusts also get exposure to industries that may be unavailable elsewhere, such as music rights or infrastructure. And they may prefer the trading ease that goes with a listed share compared to investing in a mutual fund, especially when the underlying investments are illiquid. .The downsides are inefficiency, flawed governance and often-lackluster performance. Each trust has a board of directors plus its own auditor and advisers. Overwhelming retail investor ownership makes for weak stewardship: Voting turnout at shareholder meetings is embarrassingly low..This helps explain why trusts often trade at a discount to their underlying assets. Perhaps this gap doesn't matter so long as it stays constant or narrows. But stubborn and large discounts to net asset value (NAV) raise an obvious opportunity, namely to liquidate the holdings to pay investors proceeds that would be more than the trust's stock price..Against that backdrop, Weinstein's Saba Capital Management has taken stakes in seven UK investment trusts and sought shareholder meetings to remove their boards and install itself as investment manager. The attack is the most ambitious in the sector's long history of activist assaults..While Saba hasn't given specific plans for all the targets, it's set out a general strategy to offer shareholders fund liquidation at close to net asset value, or a transfer to a new strategy focused on…buying other investment trusts. Some of the trusts could be merged..The incumbent managers are urging shareholders to vote against Weinstein's resolutions. They say he's seeking control without offering a takeover premium and point out his interests aren't aligned with other shareholders: Saba, after all, would profit from snaring the seven investment mandates. Plus, a trust-of-trusts investment portfolio would be a radical departure. All true. But for investors, the battle really boils down to a practical question: Will ceding to Saba give them better returns?.Read more: UK's Chagos islands cession: A risk to global security and rule of law – Anthea Jeffery.If Saba is able to liquidate a fund at close to net asset value, shareholders could well get cash worth more than where their trust's shares have been trading. Having pocketed that gain, they could reinvest in, say, an index fund with a similar theme. Or they could go with Saba's investment trust play. That's a nice option..There are two risks to consider. First, some of the trusts own thinly traded shares or private investments like a piece of billionaire Elon Musk's SpaceX. In some cases, only partial liquidation may be possible or sensible. And secondly, Saba's own Closed-End Funds ETF (an exchange-traded fund focused on investment trusts) hasn't been around that long. CEFS' total returns beat the S&P 500 on a three-year view and matched the US benchmark over the last 12 months. But Saba's long-term performance record with this strategy is still being established..The positive case for sticking with the incumbent boards varies case by case. Two of the targeted trusts, CQS Natural Resources Growth and Income Plc and The European Smaller Companies Trust Plc have impressive long-term records. The former was trading close to NAV before Saba popped up, and ESCT's trading discount was under 10%. They're tough targets. Henderson Opportunities Trust Plc and Keystone Positive Change Investment Trust Plc are already offering to pay shareholders NAV, or close to it. That removes the main reason to hand control to Saba..Read more: 🔒 The UK's biggest challenges for the victorious Labour Party to solve: Clive Crook.Others have less solid defenses. The Baillie Gifford US Growth Trust Plc's total returns from inception in 2018 to the day before Saba's interest emerged match its benchmark only thanks to a recent share-price surge that coincides with Saba's stake building. On a three-year view, it has lagged. Edinburgh Worldwide Investment Trust Plc stock has underperformed on a three-, five- and 10-year view (if only just). It's planning to return up to £130 million ($159 million) to shareholders, nearly 20% of its market capitalization, which may boost returns..Finally, Herald Investment Trust Plc's shares have likewise trailed its US tech benchmark on a three-, five- and 10-year view. It needs investors to focus on its better longer-term performance, or compare it with its alternative — and undemanding — European smaller companies benchmark. Its illiquid portfolio may also be a challenge to exit..It seems unlikely Saba will achieve a clean sweep here. But even if all its challenges fail, the inconvenient truth remains. For many of these vehicles, investors would have been better off buying a comparable index fund over the last decade. London has too many small trusts that lack scale; consolidation makes sense to reduce the drag of operating expenses. And with the proliferation of trackers and exchange-traded funds, it's not clear you would invent investment trusts today if they didn't already exist..Read also:.Redefining AI investment: Why value investing trumps 'Picks and Shovels' – Sean Peche🔒 UK's new savings plan: Your money becomes everyone's money – Merryn Somerset WebbProperty investment in the UK – offshore options.© 2025 Bloomberg L.P.

Boaz Weinstein’s shaking up the UK’s investment trust industry – Chris Hughes

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