US Hedge Fund's Tactics Threaten UK Investment Trust Industry

The ongoing battle for control of the Baillie Gifford US Growth fund, with a shareholder meeting scheduled for October 23, has implications extending beyond the single investment trust, according to Ruth Sunderland in the Daily Mail. The tactics employed by US hedge fund Saba, led by Boaz Weinstein, are seen as a threat to the integrity of the UK's entire £270 billion investment trust industry.

Weinstein, through his investment vehicle Saba, has reportedly been attempting to gain control of investment trusts for two years. His strategy involves exploiting loopholes to install directors sympathetic to Saba without paying a takeover premium. If successful in installing three directors at the Baillie Gifford US Growth fund on his third attempt, it would represent a significant boardroom coup. The fund invests in companies such as AI firm Anthropic and payments business Stripe.

This situation arises at a critical juncture for the UK economy, which is seeking growth and aiming to encourage more companies to list domestically and attract private savers into shares. Confidence in the market's regulation and the protection of private investors' interests is crucial for these goals. However, Saba's methods, which involve replacing existing board members and potentially securing lucrative investment management contracts for Saba, are seen as undermining this confidence.

Investors have previously voted against Saba's proposals at trusts including BG US Growth. Despite these rejections, Weinstein has persisted, a strategy that may eventually succeed due to voter inertia. Many private savers hold shares through platforms that do not facilitate easy voting, and repeated attempts can wear down opposition. While platforms are improving voting processes and digitizing shares to make them easier to manage, the regulatory response has been slow.

The Financial Conduct Authority (FCA) is reviewing the situation, but early remarks from an FCA official indicating a reluctance to intervene in market "rough and tumble" have reportedly disappointed industry leaders. Critics argue that Weinstein has so far outmaneuvered the regulator, making it appear ineffective.

Shareholders in the Baillie Gifford US Growth fund have been urged to cast their votes by deadlines, some as early as October 14, to prevent further damage to the investment trust sector and the broader UK market.