Britain’s watchdog is closely monitoring the battle between investment funds and American hedge funds
Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
The UK’s Financial Conduct Authority has been dragged into an increasingly factional activist campaign targeting seven investment trusts as concerns grow over the interests of retail investors.
The FCA has contacted the biggest retail investment venues over their communications with clients of seven investment trusts targeted by US activist hedge fund Saba Capital, according to people familiar with the situation. The regulator wants to ensure that shareholders are aware of the upcoming votes on foundation board membership.
FCA officials asked Hargreaves Lansdown, Interactive Investor and AJ Bell about how they warn clients who hold investment trusts on their platforms, according to people familiar with the communication.
Saba, which he leads activist investor Boaz Weinsteinhe called on shareholders to vote to oust the foundations’ boards, arguing that the boards had failed to hold their investment managers accountable for poor performance.
The campaign could lead to one of the biggest shake-ups in the 150-year-old UK investment trust industry, which has £266bn of assets under management.
Saba has proposed his candidates for the board and ultimately intends to take over the management of the foundation’s investments, which are currently led by Baillie Gifford, Janus Henderson, Herald Investment Management and Manulife.
However, the investment trust industry has expressed concern that retail investors may not turn out for the election, paving the way for Saba to take power. Saba has stakes ranging from 19 per cent to 29 per cent in each of the trusts, totaling £1.5 billion. Saba needs more than 50 percent of the vote for each commissioner to win.
The FCA is closely monitoring the situation and remains in close contact with investment platforms that manage communications with investors in investment trusts, according to a person familiar with the matter.
However, the rules governing the voting for the removal and appointment of directors of investment foundations are determined by the Companies Act, not FCA regulations, so the supervisory body decided that for now these are internal matters for the foundations, their management and investors, the person added.
The Association of Investment Firms, the trade body for the sector, has written to the FCA expressing 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 a vote.”
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 and become their asset manager led to potential conflicts of interest.
The seven trusts Saba is targeting are Baillie Gifford US Growth; Edinburgh Worldwide Investment; Keystone positive change; European smaller companies; Henderson options; Herald Investment; and CQS Natural Resources Growth & Income.
Hargreaves Lansdown and AJ Bell said they had written to trust shareholders to encourage them to vote. Interactive Investor said it has also taken steps to allow clients to vote. The FCA declined to comment.
