As the new year approaches, Boaz Weinstein, founder of Saba Capital, is stirring the pot in the UK investment trust sector by targeting seven trust boards for removal. This ambitious strategy seems to reflect a dynamic approach to revitalizing the often stagnant realm of investment trusts.

Weinstein, who considers himself a “blackjack card counter” and a “chess master”, deserves recognition for his hedge fund’s aggressive acquisition of significant stakes—ranging from 18.6% to 29.2%—in various trusts including Herald Investment Trust, Baillie Gifford US Growth Trust, and Keystone Positive Change Investment Trust. This involvement has led to a marked reduction in their discounts to net asset value (NAV), with some discounts shrinking to slight premiums, benefiting shareholders.

However, his recent move to requisition shareholder meetings to replace incumbent directors with his own nominees, appoint a new investment manager from Saba, and shift mandates towards purchasing discounted trusts lacks a solid foundation.

Tom Burnet, chairman of the US Growth Trust, raises valid concerns, asserting that Weinstein’s proposals may not only be self-serving but could also disrupt the board’s independence and ultimately harm shareholder value. An estimated 30% of that trust’s NAV is tied up in illiquid unlisted assets, including a significant portion in Elon Musk’s SpaceX. It calls into question what unique value Weinstein could bring in unlocking that potential.

Weinstein’s journey has not been without challenges. Following the financial crisis of 2008, when his team incurred $1.8 billion in losses while at Deutsche Bank, he launched Saba Capital, which, despite some notable strategies like capitalizing on the infamous “London Whale” debacle, has seen fund performance fluctuate. Currently, its Income and Opportunities funds are trading at discounts of over 9%.

Weinstein has pointed to recent performance statistics, claiming that Saba’s closed-ended funds ETFs have outperformed trusts like Herald. However, while Herald has delivered impressive long-term NAV returns since 1994, Saba’s shorter-term focus raises questions about sustainability.

Moreover, claims of bringing lower fees into the mix remain uncertain, especially with accusations from Keystone’s chair, Karen Brade, of Saba’s behavior being less than forthright.

In an effort to offer investors cash options, Keystone proposed a plan to facilitate a cash exit at a 1% discount or rollover into a more liquid investment. However, after discussions with Saba’s portfolio manager regarding potential direcorships, Brade expressed dismay over Saba using its significant shareholding to block their arrangement.

In response, Saba has labeled Keystone’s leadership as responsible for considerable underperformance since 2018, claiming it has resulted in nearly 130% losses.

The conflict between these parties sets the stage for an intense battle over control. As Weinstein aims to gather majority support, he faces the challenge of mobilizing retail investors who have been historically disengaged during such votes. It remains crucial for these investors to voice their opinions, either supporting the leap of faith with a hedge fund or standing firm against it.

Budget Implications

On another front, Rachel Reeves’ recent budget proposal appears crafted to protect “working people,” yet coinciding with it, the UK has experienced the fastest job reduction rates in nearly four years. According to S&P Global’s purchasing managers’ index, the decline has been sharpest in over 15 years, with nearly one-fourth of businesses reporting payroll decreases.

Tim Moore, the economics director at S&P Global Market Intelligence, attributed this downturn to a proposed £25 billion annual increase in employer national insurance costs, leading to decreased business optimism following the budget.

Debating Denise Coates’ Earnings

Denise Coates, joint CEO of Bet365, saw her pay package, including dividends, nearly halved last year, dropping from £271 million to £159 million. Despite this decline, she remains a figure of contention—celebrated for transforming a small Stoke-on-Trent company into a global giant with a reported £120 million contribution to charity, whilst criticized for profiting from problem gambling.

A recent report indicated that 300,000 adults are classified as problem gamblers, with an additional 1.8 million at risk. However, for many, betting is regarded as mere entertainment. This duality presents a complex debate reminiscent of how society views other industries linked to minority issues like alcoholism or obesity.