Saba lures in Herald shareholders with cash exit offer

The hedge fund attempting to seize control of seven London-listed funds is hoping to win over Herald Investment Trust investors with the offer of a cash exit.

Saba Capital is trying to overhaul the boards of seven trusts it has built substantial stakes in, including Herald, and impose itself as investment manager.

The group has accused respective boards and management of failing to sufficiently tackle performance-related issues and persistent discounts to net asset value.

It is set to take its proposals to shareholders in a series of votes scheduled from 22 January to 5 February.

Herald, along with its six affected London-listed peers, has already urged shareholders to reject Saba’s ‘opportunistic’ approach, accusing the hedge fund of self-interest at the expense of other investors.

They further point to the fact that performance has recently improved and discounts have narrowed significantly.   

Saba said on Thursday that, should its 22 January proposals be approved by Herald shareholders, it will encourage the trust’s new ‘independent’ board offer them a 100 per cent cash exit at 99 per cent of the trust’s net asset value.

It said in a statement: ‘Saba expects that shareholders will have the opportunity to sell their entire position at 99 per cent of NAV, if they wish.

‘In addition, Saba would support further changes so this cash exit would be overseen by a fully independent board and would not expect it to occur for at least a year thereafter, ensuring portfolio value is maximised.’

The offer is notable against Saba’s rejection of a near identical plan that was set to be carried out by the board of Keystone, before the hedge fund’s intervention.  

Saba said the commitment comes ‘in response to feedback from shareholders’ and provides ‘certainty regarding the plan to deliver long-overdue liquidity to all shareholders, alongside the opportunity for greater long-term returns under a new investment strategy and manager’.

In response, Herald’s board said: ‘Saba is not proposing to offer 99 per cent 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.’

Chair Andrew Joy added: ‘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. 

‘The Board reiterates its belief that, since Saba started investing in 2009, it has materially underperformed Herald. Since that date Herald has delivered a NAV total return of over 865 per cent.’ 

Herald and the other affected funds have criticised Saba’s lack of a clear post-vote plan should it win over shareholders.

Saba has announced its chief executive Boaz Weinstein will reveal the group’s plans ‘to deliver shareholder value at all seven trusts’ next week.

FundCalibre managing director Darius McDermott on Thursday joined other City figures in urging investors of all seven trusts to reject Saba’s proposals.

He warned Saba ‘threatens the longstanding independence that safeguards your investments’, and that shareholders should ‘expect higher fees, a shift in strategy, and potential exposure to riskier assets’ should the hedge fund get its way.

McDermott added: ‘The investment trust sector, a bedrock of stability and independence, is facing an unprecedented challenge. Don’t let it be reshaped to serve short-term interests.

‘Saba aims to use one trust to acquire distressed assets, a strategy that has shown mixed results in the US. This is about their gain, not yours.’

McDermott further warned a Saba victory would ‘likely be the result of investor inaction’, suggesting the proportion of retail investors versus major insititutional shareholders in each trust will likely play a role in the outcome.

He said: ‘If shareholders don’t act, they could end up with something entirely different and more costly. 

‘Contact your platform, vote, and attend the meetings. Protect your investments before it’s too late. Saba’s changes could lead to higher charges, and a shift away from the original objective of these trusts.

‘Shareholders must unite and vote to safeguard their future. It is also incumbent on platforms to alert their shareholders and outline the potential outcomes and their voting rights. Inaction is our biggest enemy.’