The battle over UK investment trusts

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dispatch

In the world of British listed companies, mutual funds are often looked down upon as a sleepy backwater, an uninspiring and boring corner of the market.

That’s despite the fact that British mutual funds, as they are known in the United States, are the world’s largest market for closed-end funds, with a total stock market valuation of around 265 billion pounds (about $357 billion).

However, there is no discussion at this time. The sector is currently highly talked about due to US activist investor Boaz Weinstein, founder and chief investment officer of hedge fund Saba Capital.

He launched a campaign to remove the boards of seven mutual funds in December 2024, shocking the mutual fund world known in some parts of Europe as SICAV (Société d’Investissement à Capital Variable, a French expression meaning investment company with variable capital).

Saba has called general meetings of three trusts run by venerable Edinburgh fund manager Baillie Gifford (Baillie Gifford US Growth Trust, Edinburgh Worldwide Investment Trust (EWIT) and Keystone Positive Change) and two trusts run by Janus Henderson (Henderson Opportunities Trust and European Small Business Trust).

Also targeted were CQS Natural Resources Growth and Income Trust and, most explosively, Herald Investment Trust. Herald Investment Trust is a £1.2 billion fund managed by Katie Potts, a leading British small-cap investor, who is well-respected in London’s Square Mile for her success in supporting countless growing companies at their early stages. These include FTSE 100 members such as Arm Holdings, Diploma Group, Informa, Admiral and Missis, as well as Bloomsbury Publishing, publisher of author JK Rowling’s best-selling Harry Potter novels.

All of these trusts had share prices trading at a significant discount to their net asset values ​​(the amount of money they could raise if they closed the trusts and sold all their assets). Mr. Weinstein’s aim was to replicate his success in the United States, where he took over a number of similarly distressed trusts.

However, even though Saba had acquired 19% to 29% stake in each trust by St. Valentine’s Day last year, helping to reduce the discount to the transaction price in the process, it was rejected by all seven shareholder votes.

“I had never experienced anything like this before,” Weinstein told the Wall Street Journal at the time. “I didn’t realize how clubby the British financial world was.”

What if it doesn’t work out at first?

Undeterred by the experience, Weinstein, a master chess and poker player who famously made a fortune betting on JPMorgan trader Bruno Iksil, nicknamed the London Whale, in 2012, is trying again.

He unveiled two new positions in the British trust at the Son Investment Conference in London last November, and launched a new attack on EWIT just before Christmas.

This time, I have a feeling that we may be able to achieve our goal of dismissing the EWIT board.

First, since the vote in February last year, Saba has increased its stake in EWIT from 25% to over 30%. EWIT chairman Jonathan Simpson-Dent admitted to the Sunday Times over the weekend that EWIT would need to rally at least half of the 24,000 individual shareholders who collectively own half of the company behind the board, as voting would be based on a simple majority of voters.

“We have to get 12,000 people to vote (against Sabah),” he told the newspaper. “There is a clear scenario where he could take control of the trust, even though we can only mobilize 10,000 people instead of 12,000.”

Mr. Weinstein also threatened to sue EWIT if it did not provide more information about the sale of some of Elon Musk’s SpaceX stock last October.

EWIT, which first invested in SpaceX in 2018 and is believed to have achieved a nearly 950% return on investment, has reduced its stake ahead of a proposed merger with Baillie Gifford US Growth Trust, which also owns SpaceX stock, in a move that Saba said “seems to defy commercial logic.” This came just before a secondary share sale in December that valued SpaceX at $800 billion, leaving EWIT with £37 million, Saba said.

EWIT is expected to argue that the sale was necessary because SpaceX would account for more than a quarter of the expanded company’s assets once the merger is completed, violating a self-imposed regulation that prohibits investing less than 25% of total assets in private companies.

But Simpson-Dent admitted to the Sunday Times that he “understands why people say the optics don’t look good” of the sale.

Mr. Weinstein’s aggressive tactics have left him with few friends in Britain’s business community.

But win or lose, he made an impact. Many of the trust companies he targeted a year ago have since taken steps to lower the discount rates on their stock trades.

One of them, Herald, announced last Friday that it had launched a tender offer to all shareholders, including Saba, which owns 30.7%, and could sell all its shares at a price close to its net asset value, provided Saba itself bids for all or most of its holdings.

And there is no doubt that some mutual fund committees remain too complacent. The average discount rate for mutual funds remains at 15% and has remained at double-digit levels since May 2022, a level not seen since June 1997 to January 2001, according to data released last week by the Investment Companies Association, an industry group.

The sector could have benefited if Mr. Weinstein had been able to push more boards to take decisive action.

UK Trade Policy Secretary Chris Bryant speaks to CNBC’s Ritika Gupta in wide-ranging interview

Callum Pickering, chief UK economist at Peel Hunt, discusses the outlook for the UK housing market in light of the Bank of England’s expected interest rate cuts this year.

Deren Nathan, head of equity research at Hargreaves Lansdown, said lower-end retailers faced “insane” competition, with AB Foods’ Primark among the hardest hit.

— Holly Ellyatt

need to know

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Rolls-Royce has set a new high for every business day in 2026. Aerospace and defense companies have benefited from a number of factors, from their defense exposure to thriving power systems businesses and broader FTSE 100 gains. Its share has increased by nearly 1,200% over the past five years.

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— Holly Ellyatt

Quote of the week

at the market

UK stocks have been strong over the past week. FTSE100 Rises on talk of possible merger of mining giants rio tinto and glencore similarly rolls royce A strong start to the year. Despite falling slightly on the day, the UK blue-chip index reached 10,137.35 by Tuesday’s close, up from 10,048.21 last Wednesday.

sterling The currency has been mostly stable against the dollar in recent days, trading at $1.3431 on Tuesday afternoon, down slightly from $1.3457 a week ago.

On the other hand, the UK government’s benchmark yield is 10 year bond The gilt, also known as gilt, stood at 4.4024% on Tuesday, down from 4.4155% last week.

— Hugh Leask

very soon

January 15: UK GDP data for November
January 21: UK inflation rate for December. CBI’s first quarter economic optimism index