The British watchdog oversees the battle between investment funds and American hedge funds
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The UK’s financial regulator has been drawn into one The campaign is increasingly fierce targets seven investment trusts as concerns grow over the interests of retail investors.
The FCA has reached out to the largest retail investment venues over their contacts with clients of seven investment trusts being targeted by US activist hedge fund Saba Capital, according to people familiar with the matter. this situation. The regulator wants to ensure that shareholders are aware of upcoming votes on board membership at trusts.
According to people aware of the communications, FCA officials asked Hargreaves Lansdown, Interactive Investor and AJ Bell how they warn customers who hold shares in investment trusts on their platforms.
Saba, operated by Activist investor Boaz Weinsteinhas called on shareholders to vote on ousting the trust’s board, arguing that the board has failed to hold its investment managers accountable for poor performance.
The campaign could lead to one of the biggest shake-ups in Britain’s 150-year-old investment trust industry, which manages assets worth £266 billion.
Saba does propose its own board candidates and is ultimately aiming to take on investment management of the trusts, currently run by Baillie Gifford, Janus Henderson, Herald Investment Management and Manulife.
However, the investment trust industry has raised concerns that retail investors may not vote, paving the way for Saba to take over. Saba has a stake of between 19% and 29% in each trust, totaling £1.5bn. Saba needs more than 50% support in each trust to win.
According to a person briefed on the matter, the FCA is closely monitoring the situation and staying in close contact with the investment platforms that handle communications with investors in investment trusts.
However, the rules governing voting to remove and appoint investment trust directors are set out under the Corporations Act and not under FCA regulations, so the watchdog decided that at present these are internal matters for the trust, its board and investors, the person added.
The Association of Investment Companies, the industry’s trade body, has written to the FCA raising concerns about protecting shareholder interests.
“With so many threats, regulators cannot rely solely on those doing the right thing,” said Richard Stone, chief executive of AIC. “When significant changes to investment trusts are proposed, platforms should actively contact their customers 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 gain control of the boards of both investment trusts and also become their asset manager raised potential conflicts of interest.
The seven trusts Saba is targeting are Baillie Gifford US Development; Edinburgh Global Investment; Key positive change; Smaller companies in Europe; Henderson Opportunity; Investment Herald; and CQS Natural Resources Growth & Income.
Hargreaves Lansdown and AJ Bell said they had written to the trust’s shareholders to encourage them to vote. Interactive Investor said it has also taken steps to allow customers to vote. FCA declined to comment.
