One of the more interesting phenomena to appear in recent months is Saba Capital Management’s campaigns targeting several members of the UK’s investment trust sector.
The New York-based hedge fund initially targeted seven UK investment trusts, disclosing that it held stakes ranging from 19 to 29 percent in December 2024. Saba urged shareholders to replace the trusts’ directors with its own nominees, and, in some cases, eventually to replace the investment manager with itself, on the grounds that the trusts had failed to perform versus their benchmarks, resulting in deep trading discounts to net asset value (NAV).
In response, the Association of Investment Companies (AIC) wrote to the Financial Conduct Authority (FCA) to raise concerns regarding shareholder protections for retail investors, and the possibility of conflicts of interest if Saba eventually controlled both the boards and investment management responsibilities of the trusts. It also called on the FCA to review how board independence is determined under the regulator’s Listing Rules. As CEO of the AIC, Richard Stone, explained:
The FCA must review the scope of board independence in the Listing Rules. Saba’s campaign raises questions about the independence rules if they permit a significant shareholder, who may have a conflict of interest, to effectively select board members – particularly when those board members may go on to appoint that shareholder as the asset manager.
This is not Saba’s first rodeo. In the past decade, Saba has been a prominent activist at US closed-end funds (CEFs), which are the functional equivalent to UK investment trusts in the US. Among other campaigns, Saba targeted ten CEFs managed by BlackRock in 2024. Subsequently, the hedge fund submitted proposals for consideration at their 2025 AGMs to declassify the boards of most of these funds. In January 2025, BlackRock reached an agreement with Saba to conduct self-tenders at two of its funds in return for a standstill lasting through the 2027 proxy season at 48 of the 49 remaining BlackRock CEFs. Saba has since nominated eight directors for the ten-member board at the only BlackRock fund not covered by this settlement, BlackRock ESG Capital Allocation Term Trust.
Saba is yet to reach similar agreements with any trusts in the UK. Helped by the successful efforts of the investment trusts in mobilising many of their retail investors to vote in favour of incumbents, Saba has so far proved unable to garner enough support, with all seven votes that have happened failing to go the way of the dissident.
Saba’s latest campaign
Saba launched a new campaign in February 2025, targeting two of the seven trusts again (CQS Natural Resources Growth & Income and European Smaller Companies Trust) and two new trusts (Middlefield Canadian Income and Schroder UK Mid Cap Fund). This new campaign also came with a change in strategy, with Saba stating that it intended to roll or convert the four investment trusts into open-end funds. Unlike UK investment trusts or US CEFs, open-end funds cannot ‘trade’ at a premium or discount to NAV. Instead, they are redeemable for NAV on a daily basis. According to Saba, this would address the gap between share price and NAV, in an attempt to set the trusts “free of the structural issues that plague closed-end funds.” Saba’s announcement of its intention to requisition the further four general meetings stated:
While we acknowledge that shareholders were not ready to fully replace the boards with new directors, it was clear from our conversations that many investors agree with Saba on one crucial point: the importance of the option for liquidity at NAV.
Three of Saba’s requisitions have been withdrawn and one proved defective. In all three cases where Saba withdrew its requisitions, the trusts stated that Saba did so in order to facilitate discussions and to allow the trusts to consider various strategic alternatives.
Implications for the UK investment trust sector
Saba’s failure to secure enough investor support for board representation at any of the seven UK investment trusts may have assuaged concern within the community of investment trust managers. However, for many commentators, the Saba saga represented a wake-up call for the sector rather than a return to the status quo.
Writing in the Investor Chronicle, Dave Baxter contended that the immediate winners would likely be investors, as investment trusts attempt to improve relations vis-à-vis their shareholders in an effort to see off future threats posed by activists. Indeed, after Saba’s first round of meetings, some investment trusts have since changed the method by which they calculate management fees. For instance, the Gresham House Energy Storage Fund announced in early February that it would reduce its management fee to an equal weighting between the market capitalisation average and NAV. This has been seen in some quarters as an effort to address investor concerns in relation to the valuation gap.
Similarly, David Harris argued in the FT Advisor that the Saba campaign should theoretically lead to a time of introspection for investment companies, especially given the competition they now face in the investment landscape from multiple different fund structures, including passive, open-ended, and active exchange-traded funds. He envisaged an amalgamation of investment funds into fewer, albeit larger, entities, with “more liquid strategies offering distinct access points for investors.”
Turning to the topic of activism in the wider UK market, according to ISS data, there was a 15 percent increase in the number of activist campaigns initiated in 2024 compared to 2023, making it the domicile most heavily targeted in Europe. However, the number of proxy contests for board seats actually decreased from 11 in 2023 to six in 2024.
According to Alvarez & Marsal’s 2025 A&M Activist Alert, the UK not only continues to be the fourth most activist-targeted country globally, but also US activists are increasingly turning their attention to Europe, with their percentage share gradually doubling over the last five years. In 2024, 35 percent of all public activist campaigns in Europe were launched by funds based in the US.
The Saba saga and future possible impacts
Although Saba’s initial foray into the UK investment trust sector may not have been successful in its objective to win board seats, it seems that this could be the first of many attempts in the investment trust sector. It remains to be seen whether the hedge fund’s future efforts will prove more effective.
However, Saba might find possible targets more prepared than before, as some investment trusts are attempting to implement defensive measures in an effort to pre-empt future activism. For instance, The Bankers Investment Trust considered the introduction of what was widely seen as a number of ‘anti-activism’ measures, including an increase to its minimum number of directors from three to five, a new requirement that a majority of independent shareholders must approve the appointment of a director representing a significant shareholder, a rule requiring that independent shareholders approve a significant shareholder as the manager, and that the trust could refuse to register shares in a shareholder’s name if it ensured that the trust would be subject to obligations under US securities law.
In the end, the Bankers Investment Trust withdrew the resolution to amend its articles. However, if the uptick in UK activism continues, we may see other investment trusts attempt to pre-emptively introduce similar entrenchment mechanisms.
By: Tom Inchley
