Trust trade body calls for greater curbs against activists

The Association of Investment Companies (AIC) has written to the Financial Conduct Authority (FCA) and the government calling for measures to “protect retail shareholders’ interests” against activists, after Saba Capital embarked on a third attack against the Edinburgh Worldwide Ord (LSE:EWI) board.

• Invest with ii: Trade Investment Trusts | Cashback Offers | Open a Trading Account

The investment trust trade body said it had demanded several measures to “defend shareholders’ rights and ensure a fair and democratic process”.

While the letter itself has not been publicly distributed, AIC chief executive Richard Stone suggested that rules should be changed, for example, to set “a limit to the number of times a meeting can be requisitioned by the same shareholder making similar proposals”.

He also said that if new trust board directors were nominated, they should be required to explain their plans for the future of the company and be subject to investor questioning and scrutiny.

Saba/EWI: round three

The AIC’s letter follows a fresh escalation in the battle between Saba and Baillie Gifford-managed Edinburgh Worldwide. The trust comfortably survived the first meeting requisitioned by Saba calling for the board to be overthrown in February 2025, then got through a second round of this last month.

Saba this week unveiled fresh plans to take control of the trust, proposing resolutions to be added at its next annual general meeting, again looking to sack the current board and install three directors nominated by the activist.

It has since said that these three directors – the same people Saba nominated at the last vote – would give shareholders a full cash exit at 99% of net asset value (NAV) if elected.

• Ian Cowie: follow the BAHJI trade for income and growth
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• Is it time to move on from money market funds?

The activist, which has launched an exchange-traded fund (ETF) focused on buying into discounted trusts, looks as if it does want to take control of some vehicles that it has major stakes in.

It has already made two attempts to overthrow the boards at Edinburgh Worldwide and stablemate Baillie Gifford US Growth Ord (LSE:USA), and recently rejected a Herald Ord (LSE:HRI) proposal of a tender offer.

Why is the AIC concerned?

If Edinburgh Worldwide survived Saba’s second attack, it did so by a slimmer margin than the first time round. Even if shareholders tend to vote against the activist, there’s a risk that over time not enough of them will show up to win the vote. With around a third of the voting rights, Saba already has a big say on any proposals.

Meanwhile, the AIC’s suggestions went further than the measures mentioned above.

Stone argued that directors nominated by a significant shareholder must win the support of other shareholders to be elected, while more should be done to enable retail investors to routinely vote their shares.

“Under current law, shareholders could agree for their shares to be automatically voted in a particular way, for example to vote in line with the board’s recommendations,” he said.

“The regulator needs to give platforms confidence so they can implement this and encourage them to do so.”

At interactive investor, customers are automatically enrolled for our Voting & Information service. When a meeting is announced, our voting service provider sends an email to all our clients holding the investment trust (unless they have proactively unenrolled for the service), informing them of the upcoming meeting and providing a link and instructions for how they can vote.