First of seven investment trusts wins vote against US activist

Shareholders in global smaller companies trust Herald Investment Trust have resoundingly voted against proposals from US activist investor Saba Capital to overhaul its board of directors.

Excluding the votes Saba cast in favour of their own proposals (being 14.1 million votes, representing approximately 34.75% of the votes cast), only a further 59,221 shares, representing just 0.15% of the votes cast, voted in favour of the changes.

This means that in total just under two-thirds of the votes cast (65.1%) were against the resolutions. In total, about 80% of shares were voted, showing high turnout from investors, both large and small. 

Saba proposed two changes, which required more than 50% of the votes cast.

The first was to “remove all current directors of the trusts”, and the second to “appoint new, highly qualified candidates to replace them”.

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• How interactive investor customers can vote

Saba Capital had put forward its choices for two new directors for each investment trust. It was then likely that, if successful, it would have appointed a new investment manager, which could have been Saba itself.

But Herald shareholders rejected the changes. Andrew Joy, chair of Herald, said: “Today non-Saba shareholders have almost unanimously rejected Saba’s self-interested proposals.

“The fact that 99.78% of all votes cast by non-Saba shareholders were voted against Saba’s resolutions and in favour of the existing board provides a clear, complete and incontrovertible rebuttal of Saba’s attempt to take control of your company and change its strategy against the wishes and interests of its non-Saba shareholders.”

Katie Potts has been fund manager of Herald Investment Trust since it launched in 1994. 

The outcome of the vote, as well as the percentage of shareholders that cast their votes, will have piqued the interest of the entire investment trust industry, given that Saba has stakes in 18 other trusts (according to analyst Numis) alongside the other six trusts it has requisitioned meetings for.

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Most of the other meetings take place in early February. Interactive investor customers will have the opportunity to cast their votes online a couple of days before each meeting. The deadline dates are shown in the table below, and the cut-off time each day is 18.59.

The meetings have been triggered by Saba Capital’s share ownership - it owns between 19% and 29% in each trust. Under the Companies Act 2006, the required percentage of share capital that must be held by a group of shareholders to be able to requisition a general meeting is 10%.

Given Saba Capital’s stake, a low voter turnout would hand the activist a greater percentage share of the vote.

In response to Herald's vote against its two proposals, Saba said in a statement: “We appreciate the thoughtful engagement from fellow HRI shareholders in recent weeks, which only reinforces the dire state of the UK investment trust industry and need for Saba’s presence in the market.

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

It added “the industry’s failure to protect shareholders from losses due to poor performance and widening discounts cannot remain unaddressed”.

In regards to Herald, Saba said it “will continue to pursue the changes that we believe are necessary to improve the trust after three years of poor returns and two decades of abysmal discount management by Katie Potts”.