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The UK’s Financial Conduct Authority has been drawn into an increasingly fractious activist campaign targeting seven investment trusts as concerns mount over retail investors’ interests.
The FCA has contacted the largest retail investment sites over their communications with customers of seven investment trusts being targeted by the US activist hedge fund Saba Capital, according to people familiar with the situation. The regulator wants to ensure that shareholders are aware of upcoming votes on board memberships at the trusts.
Officials from the FCA have asked Hargreaves Lansdown, Interactive Investor and AJ Bell about how they are alerting customers who hold shares in the investment trusts on their platforms, according to the people aware of the communications.
Saba, which is run by activist investor Boaz Weinstein, has called for shareholders to vote on overthrowing the trusts’ boards, claiming that the boards have failed to hold their investment managers to account over poor performance.
The campaign could lead to one of the biggest shake-ups of the 150-year-old British investment trust industry, which has £266bn in assets under management.
Saba has proposed its own board candidates and is ultimately aiming to take on the investment management of the trusts, which are currently run by Baillie Gifford, Janus Henderson, Herald Investment Management and Manulife.
However the investment trust industry has raised concerns that retail investors might not turn out to vote, paving the way for Saba to take over. Saba has stakes ranging from 19 per cent to 29 per cent in each of the trusts, amounting to £1.5bn in total. Saba needs more than 50 per cent of votes in favour at each trust to win.
The FCA is closely monitoring the situation and staying in close contact with the investment platforms that handle communications with investors in the investment trusts, according to a person briefed on the matter.
However, the rules governing votes to remove and appoint directors of investment trusts are set by the Companies Act, rather than by FCA regulations, so the watchdog had decided that for now these were internal matters for the trusts, their boards and investors, the person added.
The Association of Investment Companies, the trade body for the sector, has written to the FCA raising concerns about the protection of shareholders’ interests.
“With so much at stake, the regulator can’t just rely on people doing the right thing,” said Richard Stone, chief executive of the AIC. “When significant changes to an investment trust are proposed, platforms should actively contact their clients to encourage voting.”
Stone called on the FCA to review how board independence is determined under its listing rules. He said Saba’s campaign to take control of both investment trusts’ boards and also become their asset manager raised potential conflicts of interest.
The seven trusts that Saba is targeting are Baillie Gifford US Growth; Edinburgh Worldwide Investment; Keystone Positive Change; European Smaller Companies; Henderson Opportunities; Herald Investment; and CQS Natural Resources Growth & Income.
Hargreaves Lansdown and AJ Bell said they had written to the trusts’ shareholders to encourage them to vote. Interactive Investor said it had also taken steps to enable customers to vote. The FCA declined to comment.
