Saba Capital Eyes $500m For Activist UK Investment Trust Fund

The vehicle, which follows what is known as a closed-end fund arbitrage strategy, will take leveraged long positions in around 20 UK investment trusts, with the aim of narrowing their discount to net asset value through activism, according to a person familiar with the matter. 

The new strategy, which originally targeted 1 September for its launch date, is the second iteration of the firm's CEF Special Opportunities fund, which launched in April this year. Investment Week understands Saba Capital is currently growing a $3bn long exposure in UK investment trusts.

According to people familiar with the matter, the firm believes the strategy is supported by the sustained deep discounts faced by investment trusts and the UK's governance framework. About 20% of Saba Capital's portfolios are invested in UK investment trusts, Investment Week understands.

Activist investor Saba Capital opposes European Opportunities conditional tender offer

Saba Capital Management was founded by prominent US hedge fund manager Boaz Weinstein, former co-head of global credit trading in Deutsche Bank, in 2009. The firm is known for its activism, where it may engage with companies to unlock shareholder value. 

The company began investing in trusts and closed-end funds in 2013. In recent years, it has publicly challenged management groups, including BlackRock, after taking positions in US closed-end funds to monetise their discount to NAV.

Over the past 12 to 18 months, the firm has been taking positions in multiple UK investment trusts, including European Opportunities, Henderson Opportunities, Schroder UK Mid Cap and Baillie Gifford US Growth. 

On Monday (23 October), Saba Capital partner and portfolio manager Paul Kazarian issued a letter which described the conditional tender offer announced by European Opportunities earlier this month as "woefully insufficient".

In its first public statement about a UK investment trust, the firm said they would be voting against European Opportunities' continuation vote next month unless a full liquidity option at NAV is provided to shareholders. 

European Opportunities proposes performance-related tender offer

In reaction to the letter, Numis analysts Ewan Lovett-Turner and Ash Nandi wrote that the move by Saba Capital "raises the stakes" for other trusts where the firm is on the shareholder register. 

"Ultimately, we believe this is a positive for the investment companies sector. It highlights that discounts have become excessive and should highlight this fact to investors," they said. 

"It should be a wake-up call for some boards, that maintaining the status-quo of wide discounts may not be a long-term option."

Saba Capital declined to comment.

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