RUTH SUNDERLAND: We must halt the siege on trusts
Even his worst enemies could not accuse raider Boaz Weinstein of Saba Capital of giving up too easily.Quite the reverse – the US hedge fund manager does not seem to have an off switch. Weinstein has been agitating to seize control of a string of UK investment trusts without having to pay a takeover premium.He laid siege to seven last year and was roundly repulsed. Despite this, his campaign continues.The battle raging over Herald, one of his targets, is shaping up to be one of the most significant ever in the 150-year-old sector.His methods show deep contempt for British private investors. Investment trusts look after about £264billion of assets, with a heritage of financing innovation, including railroads in the US in the 19th century. Herald continues that tradition, providing capital for much-needed tech share floats in the UK. Yet City regulator the Financial Conduct Authority (FCA) seems content to stand by and let Herald fall into the hands of a ruthless hedge fund boss using Trojan Horse tactics. It is imperative that he be stopped.Saba has a stake of just more than 30 per cent in Herald, which normally would trigger a requirement for it to launch a formal takeover offer. On the attack: Even his worst enemies could not accuse raider Boaz Weinstein of Saba Capital of giving up too easilyIronically, this is not the case due to 'innocent bystander' rules: the stake edged over the 30 per cent threshold because of share buybacks by Herald.It has just scuppered an attempt by the trust board to let it – and any other investors who wanted to leave – sell their holdings at net asset value.That proposal would also have enabled investors who wanted to stay with Herald to do so, albeit in a smaller fund. TheHerald board is now in discussions with Saba to try to find a solution. If those fail, there is a nuclear option which will result, in effect, in the winding up of the trust.That would be wanton damage inflicted on investors in a trust that has performed much better than its aggressor, Saba's Capital Master Fund.The latter has returned 150 per cent since it was set up in April 2009, compared with more than 900 per cent at Herald.I won't trouble readers with the technicalities, but City regulators could take action if they chose to.They could tighten up voting rules in such a way as to negate Saba's strategy of installing its own directors on trust boards, which at the moment gives them carte blanche to change the managers and the strategy to their own advantage. Raiders such as Saba could be blocked from doing so under related-party rules. Another reform would be to give platform investors a default option to vote in line with independent board recommendations. That would overcome the hassle that so often mutes the small-shareholder voice.The point is that regulators need to back besieged trusts and beat raiders at their own game. This is not about shielding complacent boards; it is about preventing harm to private investors.Weinstein is using short-term tactics to destabilise long-term funds that are one of the few routes allowing ordinary people to take a stake in exciting new technologies, now as in the Victorian era.If the Government is serious about wanting the UK to be a winner in the tech race, it should be concerned about Saba.The fate of Herald may be a watershed for investment trusts. I hope the regulators are galvanised into action before it is too late.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
Share or comment on this article:
RUTH SUNDERLAND: We must halt the siege on trusts
