Four BlackRock investment trusts strike deal with US activist

US activist investor Saba Capital, run by Boaz Weinstein, is pursuing an aggressive activist campaign against UK investment trusts. 

He has forced general meetings at seven trusts, with the first happening at Herald Ord (LSE:HRI) today, where he is seeking to oust the board and appoint a new investment manager, which could be Saba itself. 

However, he has struck a deal with BlackRock to not seek changes at four investment trusts that the giant American fund manager runs in the UK: BlackRock American Income, BlackRock Energy & Resources Income, BlackRock Smaller Companies and BlackRock World Mining.  

Among the agreements, Saba has said it will: 

• Not seek to change the composition of the board 
• Not put forward any proposals to shareholders or requisition any resolution or general meeting of the company 
• Vote on any resolution at any shareholder meeting of the company in accordance with the board's recommendation. 

These commitments will hold until 2027, until the day after the trusts hold their annual general meeting that year, or after 31 August, whichever is first.  

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While not explicitly stated, it appears likely that Saba struck this deal with BlackRock in return for changes at two closed-ended funds that BlackRock runs in the United States. 

Yesterday, Saba secured a deal for two BlackRock trusts to buy back between 40% and 50% of their shares at just below their net asset value, effectively closing the discounts on these trusts, which benefits shareholders. 

Saba owns these two trusts in an active exchange-traded fund (ETF) it runs in the US, SABA Closed-End Funds ETF, which buys shares in closed-ended funds and uses activism to narrow discounts.  

This is a similar strategy that it would deploy if Saba managed to win the investment mandate at the investment trusts it is targeting in the UK.  

“Our settlement with BlackRock shows that there is a path to a win-win outcome for managers and shareholders,” Weinstein said on Twitter/X.  

The UK investment trusts in the agreement with Saba said: “The board notes that certain BlackRock closed-end funds in the US and UK have entered into separate agreements with Saba, each of which was negotiated on behalf of the applicable fund and approved by such fund's board of directors.” 

Saba is shaking up the UK investment trust industry, which has suffered from wide and persistent discounts over the past three years.  

Holders of the seven trusts targeted can vote on the proposals to decide whether they want a new board and investment strategy, as well as an expected option to sell shares close to their net asset value, or to stick with the existing fund manager and board.  

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%. 

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Each voting item will require more than 50% of the votes cast to be in favour of the boards’ removal in order to pass. Given Saba Capital’s stake, a low voter turnout would hand the activist a greater percentage share of the vote. 

Therefore, it is important that retail investors consider having their say. While it is easy to think that as a small shareholder your vote will not make a difference, if increasing numbers of investors engage and use their votes it will result in retail investors having greater influence.