The Association of Investment Companies has penned a letter to the FCA over concerns with votes being held by seven investment trusts following engagement from Saba Capital and the role of platforms.
The AIC voiced concerns over the participation of retail investors in voting on the future of the trusts. While platforms have been supplying information on the voting to customers, the AIC called for platforms to “actively contact” clients to encourage voting and have investors automatically opted in to communications about actions within trusts.
See also: Saba’s Weinstein fights back at criticism over trust plans
Richard Stone, chief executive of the AIC, said: “Following Saba’s action, we are concerned that the current regulations do not protect the interests of retail shareholders. Saba is targeting investment trusts with a high percentage of retail investors, so it’s vital they have their say on the activist’s radical proposals to replace the board, change the investment strategy and become the investment manager.
“We are relying on platforms’ support to get this information out to their customers and encourage them to vote. Thankfully they have been broadly supportive of our call for action.”
In a presentation released by Saba, the firm outlined that if elected, it would assess options for liquidity events and appoint at least one additional independent director to the boards. In a longer-term view, Saba said it would consider ending the trusts’ current management agreements, research new managers which could include Saba and apply a similar investment strategy to the one used for Saba’s Close-End Funds ETF.
See also: Saba Capital and its intentions for the UK investment trust industry
The AIC also called on the FCA “to urgently explain its views on the independence of directors under the Saba proposals”, and questioned how conflicts of interest would be managed if Saba won the vote and was proposed as manager.
Saba said apart from Saba founder Boaz Weinstein and Saba principal executive officer Paul Kazarian, its candidates for directors are independent. Weinstein and Kazarian have committed to recusing themselves from any votes that would involve decisions related to Saba, including a vote to appoint the company as investment manager.
“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,” Stone said.