January 15, 2025 • 51 mins
“We’re not here to make trouble.” So says Boaz Weinstein, founder and chief investment officer of activist investor Saba Capital Management, who joins this episode of the Merryn Talks Money podcast, hosted by senior reporter John Stepek.
His claim may come as news to boards of many UK investment trusts. Saba has taken large stakes in seven of them and called extraordinary general meetings. Those gatherings could result in existing boards being swept away and replaced by Saba's favored candidates when voting happens over the next few weeks.
Why the UK? Why investment trusts? And why now? Listen to hear Weinstein's answers.
(Corrects podcast to remove incorrect statement about fund performance data.)
Sign up to Merryn's newsletter: https://www.bloomberg.com/account/newsletters/merryn-talks-money
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to Maren Talks
Money the podcast and people who know the markets Explain
the markets. I'm Meren some set web. This week we
are doing things slightly differently. First of all, it is
(00:25):
not me who interviewed our main guests for the week,
but in fact it was John. I'll explain to you
why in a minute. Also, we're dropping the episode slightly
early because it's got rather more immediate news value than usual. Right,
So this podcast is all about investment trusts, which are
effectively companies, the business of which is to invest in
other companies. They're an awful lot of them listed in
(00:47):
the UK. They give investors, who are of course also
shareholders in the companies, access to everything from private equity
to UK equity income, to smaller companies, emerging markets, Japanese equities,
just to name few things available. They have a few
advantages over regular investment funds. They can borrow to invest
for example, and crucially, just like other listed companies, they
(01:09):
have boards of directors whose job it is to represent
the interests of shareholders or investors. So here's the thing.
In the last few years, the sector has not been
doing so well, the shares have on average been trading
at historically high discounts to their net asset value, something
that suggests a lack of demand for the shares, and
the underlying performance in a couple of cases hasn't been
(01:29):
great either. So enter US activist investor SABA Capital. About
a year ago, Boas Einstein, the founder of SABA, noticed
the large discounts in the sector, sometimes up to around
twenty percent, meaning that you could effectively buy the assets
in the portfolio at a twenty percent discount of their
market value. Saba started buying the shares in seven of
(01:50):
The trustee now has stakes ranging from nineteen to twenty
nine percent, enough for him to call for general meetings
at all seven to replace the current board and replace
them with his own people. Well, you will know these trusts,
or at least you'll have heard of some of them.
There's Herald Investment Trust, Edinburgh, Worldwide, Bailey give a US Growth,
so big names in the sector. In this podcast, John
Stirbeck talks to bos wy Inside about why he's doing this,
(02:11):
why he's interested in UK investment trusts, and what investors
can expect if he succeeds. Two more things First, regular
listeners will know that I sit on the board of
a couple of investment trusts. Neither I hears him to
add or among the seven, but nonetheless, as I have
skin in the sector game, John and I figured it
was best if he did the interview. Second, this is
a test of shareholder democracy. The platforms have all made
(02:32):
major efforts to make it easy for you to vote
on the shares that you own. Now's your chance to
do so. Have your say either way. Over to John.
Speaker 2 (02:45):
Great to have you in the Shaw Boys look forward
to hearing all about this because obviously it's caused a
big start or what he had in there the UK.
But before we get into your campaign, do you want
to tell us a bit about yourself and about your
background and a boit Saba and it came about.
Speaker 3 (03:02):
Sure, so thanks for having me. I worked on Wall
Street ever since I was fifteen years old. I was
very lucky to get a summer job, and thirty six
years later, the excitement of the ever changing nature of
markets and mispricings and arbitrage really stays fresh with me.
And I first started out working at a couple of
banks and then in nine I started SABA. I had
(03:26):
spent the weekend of Lehman Brothers failure at the New
York fed which was one of the most dramatic nights
of my life. And I got to see a lot
of crazy things over the years. I was trading when
the towers were hit by the nine to eleven attacks
and actually spoke on the phone with someone in the
towers the lines were working, who was asking for help
(03:48):
and advice. And just to have been there at the
moments in history, whether it's financial history or global history,
but to be a trading risk has been an incredible experience.
Speaker 2 (03:58):
Just one thing. Though, you said you started Wall Street
when you were fifteen. That's quite precocious. How did that
come about?
Speaker 4 (04:04):
There's a lot of luck in everything.
Speaker 3 (04:06):
And I happened to have been walking by the job
postings in my high school and there was a woman
who had gone to a similar school who needed somebody
at a deep voice.
Speaker 4 (04:15):
As I talked to you today, my voice.
Speaker 3 (04:17):
Was actually quite unusually raspy, but I had a similar
voice when I was fifteen. And she was a very
successful financial consultant named Jeanine Crane. Her mother actually was
one of the top ten brokers and Merrill Lynch and
this team needed someone to make appointments for them, and
I got to sit there and listen to research channelists
talk about stocks, and I just had the most incredible
(04:38):
experience and things build on each other, and I was
able to parlay it into a interview at Goldman Stacks
and I was able to get a summer job on
the trading floor when I was nineteen.
Speaker 2 (04:50):
Well, fantastic experience. So you found it SABA in two
thousand and nine. Tell us a bit more about that
and how you eventually came to focus on c closed
end finds in the US. Closed end finds are basically
what we call investment trusts in the UK.
Speaker 3 (05:07):
Yeah, let's call it investment trust Today. I can deal
with the cross continental differences, so we can even say
tomatow if you make me so right now, I think
I'm having some thrown at me by some of my adversaries.
Speaker 2 (05:20):
Possibly.
Speaker 4 (05:21):
Yeah.
Speaker 3 (05:21):
I started SAVA in a very difficult time for markets.
I started amidst the ashes of Lehman Brothers, the global
financial crisis. Bernie madeoff and I started very modestly. We
raised one hundred and sixty million by the time we
launched August nine, and then because of I would say determination,
force of will, and being able to convey a story
(05:44):
about the opportunity in relative value trading. We're not a
long biased investor. For the most part, I was able
to take the firm from its humble beginnings. We got
up to about five and a half billion by March
twenty twelve, which was really quite a feat. But our strategy, jeez,
have really evolved from more narrowly focused on the credit
(06:04):
markets and credit against equity and having now moved for
the past more than a decade into different kinds of
arbitrage that we hadn't done before, namely investment trusts.
Speaker 2 (06:16):
Okay, so targetting closed end funds and presumably that's to
try and narrow the discount. Is that your primary goal?
Speaker 4 (06:24):
Yeah?
Speaker 3 (06:24):
So while there are managers that have alpha, these funds
in the main have destroyed value bit by bit through
either high fees, which some funds have but not necessarily
the ones that we're talking about today, or poor performance
because of whether it's a b team that's running it
for a big institution rather than the top people, or
(06:45):
just bad luck, bad decisions, or really investors feeling like
they want out of this product. And they want to
go into more popular products like ETFs. Funds can trade
a big discounts, and that is what attracted me. It
wasn't the chance to invest a lot inside a manager.
It was the chance to buy a pound for eighty
five p and turn it back into a.
Speaker 2 (07:05):
Pound over here. For investment trusts, there's a lot of retail.
Speaker 4 (07:10):
There's a lot of.
Speaker 2 (07:11):
Private investors, small shareholders in the US. Is it like
that or does it work institutional holders for your particular funds.
Speaker 3 (07:19):
So the closed end funds in the US or the
investment trusts in the UK that we buy are held
very much by retail investors. There can be institutions in them,
and in fact there are in various funds that were
invested here in the UK or in the US, but
saba's investors. So the investors that come into our funds. First,
we manage two closed end funds in the US, and
(07:41):
we manage an ETF of closed end funds. Those are
primarily retail investors, but our hedge funds are primarily institutional investors.
They might be a pension fund in the US that
is considered a sophisticated institution, but it represents tens of
millions of retirees. So ultimately we are getting back to
mom and pop no matter how you look at it.
And I think it's worth adding that actually our second
(08:05):
most popular country to invest in sabas after the US,
is the UK. We have significant institutional investors upwards of
single tickets of three or four hundred million dollars from
some UK institutions.
Speaker 2 (08:19):
Okay, again to your actual campaign and the focus on
the UK. Why are the UK specifically and why now?
Is that something that particularly caught your eye.
Speaker 3 (08:31):
Yes, So we started investing in closed in funds for
the firm in twenty and thirteen, so we're up on
eleven years now, and I'd invested in them personally very
long time ago, so knew quite a bit about them.
But so the UK was something where they've been a
trade or two to do from the very beginning, but
not not really something more than that until three years ago.
Speaker 4 (08:53):
So I want to break that down for you.
Speaker 3 (08:55):
We had spent the first in years squarely focused in
the US. We've been had as much some time investment
in Australia than we as we had in the UK.
Why Because, to the UK's credit, the governance of the funds,
the rules of how they treat their shareholders was quite
a bit better than the US. There are things that
are done in the US to the investors by the
(09:17):
manager that it would just shock you. So the better
governance was appealing to us. But there wasn't much of
a discount because of that governance. Because the industry, which
is one hundred and fifty years old in the UK,
had done a better job of treating its investors. That
led to funds trading better. The industry grew and the
UK was about as big as the US, even bigger
until three years ago. So I want to put a
(09:39):
pin in that and then tell you what happened over
the past three years, which is why we jumped in.
Speaker 2 (09:43):
That's interesting. So you really actuallycing this back to twenty
twenty one roundnet and the else because obviously we've been
agonizing a lot in the UK about the UK stock
market generally and the idea that is praiced a discount
to markets more broadly, and obviously particularly the US, because
the US has beaten everything. But what why is it
you feel happened in twenty twenty one that particularly made
(10:08):
everything worse.
Speaker 3 (10:09):
Yeah, So first, just so everyone understands a lot of
these funds. In fact, the ones that we own not
just UK stocks. In fact, they might own majority US
they might own Nvidia and Tesla, let's say, and so
their collection. What are these investment trusts? For anyone listening
it doesn't really know much about it. They are a
collection of assets managed by a manager, a venerable manager
(10:32):
that was able to raise the money.
Speaker 4 (10:34):
And it's just a pool.
Speaker 3 (10:36):
And ettfs are much more common in the US these
days because you can get out on of these notice
at fair price at NAV and the fees are often half.
But these investment trusts which own again a collection of stocks.
In twenty twenty one, around the time that inflation was
considered to be starting to be a problem and we
had the LDI crisis in the UK, it created sellers
(10:58):
of assets and there weren't really too many natural buyers.
So what happened was the market went from very little
or no discount to big discount. And we didn't know
if that was a temporary feature because it wasn't generally
true in the UK, and so we started to buy
at eleven percent discount, thirteen percent discount, eighteen percent discount.
Even some funds that at private holdings you could buy
(11:22):
a twenty five percent discount, even forty percent discount if
people really thought it was troubled. So you can get
enormous discounts. And I want to just add one more point.
This is not discount to someone's fair value about where
UK stocks ought to be or ustoks. This is discount
to the closing price. This is an actual discount, not
a hypothetical discount. And so that's when we jumped in.
(11:44):
And we had believed in the beginning that it was
going to be transitory, that the discounts would go away,
but instead it got worse. And I can take you
through that three year timeline very briefly if you want.
Speaker 2 (11:55):
Yeah, absolutely well, first of all, just spail fort of them.
So there are seven investment trust that you've targeted just now,
and you've proposed and requisition general extraordinary general meetings at
the seven of these with the aim of replacing the
boards basically. And the funds are Bailey Gifford, US Growth, Keystone,
Post of Change Investment Trust. All of those are Bailey Giffard.
(12:17):
There's Jenis Henderson, which runs Henderson Opportunities Trust in the
European Smaller Companies Trust and then the other two are
CQS Natural Resources Growth and Income and Herald Investment Trust. Now,
I suppose the thing that jumps out to me certainly
is these trusts all our growthy trusts. Is there a
(12:40):
particular reason why you've gone for that kind of area.
Did the discount prey much greater because of their rise
and interest rates for example, like some pople are pointed
out that the last three years have been particularly bad
for these kinds of trusts, or is there another reason
behind that.
Speaker 3 (12:55):
No, we wake up every morning and we look at
the five hundred different options for us that half of
them are in the UK, almost half in the US,
and then you have a little bit of Canada in Australia.
We look at where are the biggest discounts, And so
it's less what saba's view on the small cap equities
and more where are the pressure points? Where are investors
so frustrated that they'll sell these things at the biggest discounts.
Speaker 4 (13:16):
And I think it's all.
Speaker 3 (13:17):
Too convenient to say, oh, this hasn't been a period
with rising interest rates that's been good for stocks, because
look today at how well the markets have done. You
started with the Bailey Gifford Fund maybe a UK institution,
but the fund is called the ticker is USA. It
owns US stocks. We know that when you hold Nvidia
and Tesla and Microsoft, you're winning. But the shocking thing
(13:41):
is that when I take these past three years and
we strip out the discount, we just look at how
did the stocks do in their portfolio. You have benchmarks
that they themselves selected which are up a lot despite
the points you made about higher rates. Look in the
US at the s and p up near six thousand.
Where was it three years earlier? And so investors went
into the funds had all the expectation in the world
(14:02):
that if markets went up, if stock markets went up,
they would go up. If markets went down, they would
go down. But we've seen a big bull market and
here's the shaker. These seven funds the past three years
have lost collectively, I'm not nitpicking on the worst one,
have lost fourteen percent for their investors. And that's why
investors are so frustrated. That's why these things went to
(14:25):
big discount and state of big discount. It was because
of on the average terrible performance. Let's call a spade
a spade. If the portfolio loses fourteen percent and the
market makes forty percent.
Speaker 4 (14:37):
You have a problem with your investors.
Speaker 2 (14:39):
You've kissed clayed them as the measurable seven, which is
obviously quite a catchee. Can a phrase the reference in
the magnificent seven? Obviously each individual trust has got different
admirable performance in different fact there's been for examples, to
take one that has been highlighted specifically, and I think
you've actually acknowledged this herald investment trust as a kind
(14:59):
of long and in sort of investor in smaller tech companies.
And while yeah, it's maybe struggled over the past three years,
it's it's got a very good long term track record
and obviously quite a lot of loyalty because it's had
to say manager for a very long period of time,
and she's very highly respected. Do you think it's necessarily
(15:22):
reasonable to be bracketing all of these kind of trust
as miserable on.
Speaker 4 (15:27):
The average, they're miserable.
Speaker 3 (15:29):
So you're right, So let's talk about one of the
best ones in terms of investors esteem. But I also
want to tell you you're magnificent because you're willing to
overlook three years of that reforming.
Speaker 2 (15:40):
I'm a long term investor. I'm a long term investor.
Speaker 4 (15:43):
Boy, I love it.
Speaker 3 (15:46):
You should come invest in our funds because because we
live in a world where if we have one bad
quarter or one bad year, you know, you make money
for your clients, you raise money, you lose money, you
lose investors, and you're willing to overlook. So I just
pulled it up. So yes, So the average lost fourteen
percent this fund. If I just take January first, twenty
twenty two, okay, it's actually lost a little bit of money.
(16:09):
Our US products that just owns these things. We just
owned a bunch of closed end funds. It made forty percent.
If I pull up the S and P, it's going
to have made an ungodly amount of money. And actually,
Miss Potts, her largest holding coming into this year twenty
twenty four, became a Meme stock of stores. It went
up three hundred percent. So somehow there are things in
the portfolio that are just doing so poorly that you
(16:32):
can have markets up so much, yet yet her portfolio
lose a little bit of money. And this is what
I would say. Her track record is fantastic since nineteen
ninety four. Okay, I acknowledged it. And that's also why
we decided to sweeten the offer for investors who may
be attached and may be so forgiving that they don't
care that the markets went up forty and they and
(16:53):
they lost a little bit of money. And so we've
offered in that fund that any investor that wants to
get undred percent of their money back at ninety nine
ninety nine, meaning ninety nine percent of asset value, they
may do. So we would offer that to them, which
is a style of governance that far exceeds the industry,
not just in the US in the UK, which I'll
(17:14):
explain in a minute, but let me just add that
the closed end funds HRI when we started buying it
in twenty twenty two, it was north of a twenty
two percent discount. So as much as people love Katie,
they didn't love her enough that there were no buyers
willing to pay nineteen eighteen seventeen, and we were able
to buy big stakes at double digit discounts all the
(17:34):
way through until we showed up a month ago with
a very big position.
Speaker 4 (17:38):
And so I pona just say one thing.
Speaker 3 (17:40):
We have helped thousands and thousands of mom and pop
investors that own these things take their portfolio from seventy
eight percent of NAV, the price has gone up significantly
now to almost NAV thanks to our activism.
Speaker 2 (17:55):
I mean, do it. I think a lot of investors
of quite excited about the fact that there is someone
like Sabah and some of the other activists paying attention
to the investment trust sector. I guess where I suppose
some of the concerns that are whether this is essentially
(18:15):
a time when the UK is out of favor, and
it's one thing to be comparing the performance to the
US market, but either the UK itself, as I said,
is very well known that there's a wider kind of
market down or on the UK, and this kind of
macro environment has just been very bad for most things
(18:38):
that are UK listed daft things like oil companies trading
a massive discount to their equivalents in the US, even
though they all basically own very similar assets and are
very similar sort of strategies. And I guess that's the
question is like, is good that you're drawing attention to
the massive discounts in this area, but is it follow
(19:01):
on that you would then be a better manage it
all of these assets.
Speaker 4 (19:06):
That's a fair question.
Speaker 3 (19:07):
I think if you take a step back, SAVA has
bought two billion euros worth of these funds. Okay, And
when we look at the holder's list and what's been happening,
and I can read articles that were in the Ft
or in Bloomberg the last three years that were so
negative on this sector. When we look at the holders list,
we see all the top investors selling and only one
(19:29):
institution buying us. So first, if we didn't buy, this
market would be in much worse shape. Secondly, we do
not come as American American hedge funds to go and
cause trouble in the UK. We are equal opportunity. Okay,
we're causing trouble as they see it in the US. Okay,
tens of thousands across even a few funds, so hundreds
(19:53):
of thousands if you put funds together of investors that
have seen the benefits of us making their portfolio go
back up to nev and the multiplier effect them the
interest on interest, the time value of money has been
so significant. So don't we not only have caused so
far the portfolio to rise. But let's look a step further.
(20:14):
If we're successful here, we would endeavor to bring the
first investment trust to the UK that should allow investors
to benefit from the opportunities in these discounts rather than
suffer from it, rather than be a casualty of it.
So we would have an investment trust made up of
some of these seven which everyone's were successful in. And
(20:36):
if we're given the mandate, where we would use our
acumen to go in the market, find value, buy things
at eighty six, turn them back into one hundred as
we have in the US. You could see our track
record in our US vehicles and that's a really exciting
opportunity for many UK investors who want to profit from
these discounts rather than suffer from it. And lastly, you
could look at the portfolios as they are today. You
(20:59):
again started with the one that's US based, even though
it's Bailey Gifford. Money would be coming out of the
US equity market and be put directly into what the
market that needs it the most, the UK investment trust market.
We would take that capital and buy billions more of
UK investment trust. We would push the industry to be
governed better and to trade better, and I think we
would eventually be seen even by the managers as having
(21:21):
done a great service to the industry.
Speaker 2 (21:23):
So I suggest to be clear, your plane would be
whichever ones you get hold of. The main goal is
to mostly liquidate those portfolios and then use that money
to buy other discounted investment trusts. Is that fair or
is it more complicated than that?
Speaker 3 (21:41):
There's one thing in between that we are willing to
do that. For example, Bailey Gifford when they took over
Keystone KPC, they did not give this their investors a chance,
so they were not the prior manager. I believe it
was Aberdeen. They took over the fund, change in manager,
change in strategy, and they did not offer those original
investors a chance to get out. They were then trapped
(22:03):
with this new manager, albeit a venerable manager. But the
performance of Keystone has been disastrous. If anyone wants to
look up what the definition of a disaster is the
Keystone Positive Change Fund. I think over five since they
took it over underperform their benchmark by one hundred percent
or something impossible, or maybe it underperformed by seventy and
(22:24):
underperform us by one hundred so anyhow, so they were
not afforded the chance to exit. What TSAVO would do
upon the change in the board is offer investors significant
liquidity in the case of the sixth funds out of
the seventh significant and in the seventh complete. So anyone
who wants to get out can finally, after years of struggling,
get out near nav at ninety nine percent. And whoever
(22:47):
wants to stay in and be a part of the
future will stay in and be a part of our
product offering, which will go into the investment trust market
each day and find opportunity.
Speaker 2 (22:58):
Just don't own a practical point of view there. The
most famous UNLESSTED asset that some of these trusts owned
is SpaceX elon Musk satellite operator. What would you do
about reason liquidity and order? How would you deal with
unlessted elements to the portfolios?
Speaker 3 (23:14):
The portfolios again, I think it's worth talking about the
interesting bits. But the portfolios are something like ninety eight
percent public. Okay, there's this two percent private bucket, and
the biggest holding in the private bucket is actually captured
everyone's imagination is SpaceX. Now there's a difference between being
private and a liquid and private, and everybody wants to
(23:36):
buy it.
Speaker 4 (23:36):
First it would not.
Speaker 3 (23:37):
Be hard to sell it, but second we are considering
for the ones that have SpaceX, a different exit, a
different solution, one that will be seen in hindsight as
having been We've considered different for different funds, different outcomes,
And with SpaceX, I think you're absolutely right, it deserves
consideration for perhaps allowing investors to stay in it if
(23:58):
we can find a way to do that. And I
can envision a number of different scenarios for that, and
I think SpaceX deserves to stay in the portfolio for
the most part, not promising the way things will be
in six months, but I think you bring up a
great point.
Speaker 2 (24:13):
The other bit of pushback that I've seen from various
commentators is this idea that so a lot of these
trusts do have a lot of detail shareholders, and one
thing that retail shareholders, mostly because the mechanisms haven't been
there historically although they are now, is that they're apathetic
(24:33):
when it comes to voting. And one of the points
that lots of people have made are the sabbats coming in,
We've asked for these extraordinary general meetings, and then the
risk is that essentially you the vote goes your way
because no one turns up on the day. Is that
something that has factored in to your thinking, or is
(24:55):
this Do you feel this is unfair?
Speaker 4 (24:57):
What are you?
Speaker 2 (24:58):
How would you feel if a few when because oddly
any detail investors I actually turn up to cast the vote.
Speaker 3 (25:04):
Yeah, I think personally, if these funds had made their
investors a lot of money in this bull market instead
of making a negative return, I think many more retail
investors would turn up in support. Because there's a vote
in favor. There's a vote against, but no vote is
also a vote in a sense against the manager because
they are definitely getting the phone calls right. The manager
has the list of names. I have a big disadvantage.
(25:26):
I don't have that listen names. That's why I'm here
with you the esteemed journalist, to get the word out.
And we will have done this special webinar on the fourteenth.
People who want to go and see that can go
back and look on the website. So we're trying to
get the word out. They have the full list to
get that word out. So if they're decrying, no fear,
our investors don't vote. I didn't set up your electoral system.
(25:49):
It's actually a really interesting point because we had one
manager say to me directly. I spoke to them. They
said it's no fair. They said exactly what you said,
and they said, there are no institutional investors our fund.
I mean, you know what I said to them, Why
don't you go back one year or two years ago,
there were tons of institutional investors in your fund. You're
claiming everyone loves you, but they were desperate to get
(26:10):
out and to sell you into the marketplace at a
fifteen or twenty point discount. And so we've assembled a
portfolio of tortured souls, people that couldn't stay in, and
we have taken that discount, and now it's at a
very small discount, and the retail investor who did stay
in has benefited. It's the institutional that wanted out, and
here we are that institution is no longer there to
(26:31):
vote for them. I would submit to you that they
voted with their feet and they exited to us.
Speaker 2 (26:36):
So I think you've made that one very clear. Say
this small investor does tun up one the day because everyone, certainly,
in my experience, I haven't seen a campaign to get
shareholders out and voting like this one for a very
long time. So I mean, in terms of you have
pitched to the private investor. We've already told to me
what you've planned to do, But what is in it
(26:57):
for them? We could attribute the closing of the knave
descount to yourselves and say let's say that we say
that's all down this SABA. At this point, most investors
in these funds can exit or very close to enough
occasionally a premium to spend the trust just by going into
(27:18):
the market tomorrow and selling the shares. So what extra
is in it for them if they vote for your
changes rather than against your changes?
Speaker 4 (27:29):
So there are a few features. You're right.
Speaker 3 (27:31):
The small investor could sell a small amount of shares
and get out at this price that now reflects the
optimism that we will win.
Speaker 4 (27:38):
Right.
Speaker 3 (27:39):
And if they don't want to sell, that's because they
want to give our new proposal, our new product to
this UK Investment Trust, our opportunity Trust to benefit. They
could go look at our ETF. The ticker is CEFS.
It has an eight year track record of success. I
just pulled it up as I'm talking to you now,
and I'll just tell you that since twenty seventeen. In
(28:00):
since twenty seventeen, it's total return is one hundred and
twenty five percent and the KPC fund is down twelve
percent over eight years. One lost twelve one maye hundred
and twenty five. So you could look to that as
a reason to stay in our proven track record of
eight years. You could look at the why vote for us?
If you vote against us, it's very possible that the
discount will creep back into to the product. There's an
(28:22):
example of a fund, the European Opportunities Trust EOT, where
we told investors vote for US if you vote against us,
we believe this fund will go back to a discount.
It's sitting at minus fourteen as I speak to you,
and they had a chance to exit at ninety nine
at minus one, So there's protecting their own investment means
voting for US if.
Speaker 4 (28:42):
They want to exit. Good for them.
Speaker 3 (28:43):
But what we find in the US John is that
sometimes even if SABA didn't vote, we still would have
had more votes. There's enough retail discontent. If you go
through eight years and you underperform, or five years or
three years, you're going to create an investor base that
is to listen to other ideas, and unfortunately for the product,
they don't have a mechanism to get out at an EV.
(29:05):
We're their mechanism, we're their advocate. So there's a great
reason for the retail investor to vote for us. Now
I'm not naive. I know that they don't get to
hear me on the phone, they don't get to get
emails from me, but they do hear their manager saying
that I'm going to cause death and destruction. And there's
been a lot of misinformation said, which I will have
cleared up by the time the votes are taken.
Speaker 2 (29:26):
Moving on to the boat, what you're planning to do,
as I understand it, is if they vote for you,
then clear out the old boats and replace them. And
you've already discussed having two board members, one correct me
if I'm wrong, a SABA board member, and the other
one can have chosen by yourselves. The one issue is,
(29:49):
as you've said, key governance is somewhat, if I understand
you correctly, somewhat better than it is in the US,
and two board members trust particularly whenever presumably each of
these trusts would be going through quite a significant restructure.
By the sounds of it, that sounds like a lot
(30:09):
of work for those individuals and boats here more typically
of more members what just can I answer to that?
It feels if too is late.
Speaker 4 (30:20):
To that way, I agree with you and it will
not remain too.
Speaker 3 (30:25):
We've done a lot since December eighteenth, and to ground
everything up and put it in place, we didn't have the
time to add thirty more directors to these seven funds.
I think what you could do instead of listening to
just my words is look at my actions in the US.
In the US, we manage two funds. The funds have
nine members each, eight of them are independent, and we
(30:46):
changed the governance of those funds to be more friendly
to the shareholder, less friendly to us as the manager.
We did that in twenty twenty four with a fund
we took over ticker SABA. We viewed it as we're
much more investor in this product than manager of this product,
and we want to show the managers what the best
(31:07):
governance is. That's why, unlike what Joanna Sanderson or what
Bailey Gifford didn't offer their investors in terms of liquidity,
they became the manager and they trapped people. They didn't
give them liquidity. We are giving substantial liquidity to six
and full liquidity to the seventh. So we're going to
in that same way of good governance, add a lot
of independent directors. We also, if we create a merger
(31:30):
of some of these funds, the independent directors will multiply.
But there's only one of me. Thank goodness, there's not
too me, right, can you imagine? So you're going to
be adding independent directors simply through merger and.
Speaker 2 (31:42):
The terms that UK is coming into the UK? Is
there a reason why you want to do it like
this rather than just setting up like completely a new trust,
launching a new trust to do this and I just
give all up. I guess the investment trust sect on
the UK as you see it.
Speaker 4 (31:58):
We might in the future.
Speaker 3 (32:00):
We've seen actually in the US our ETF continue to grow,
so there is demand new money right to go into
our products if you look up cefs and the AUM
growth the last few years. But the main reason is
because the sector is so beleaguered. I don't need to
reado headlines from Bloomberg and the Ft excoriating the performance,
(32:21):
the discount, the seeming inability for that discount to come
back for three years. So there is such a negative
view of closed in funds in the US and investment
trusts in the UK that actually no one's really been
able to bring a new fund.
Speaker 4 (32:34):
In the US.
Speaker 3 (32:35):
Bill Lackman tried to bring a closed end fund and
ultimately shelved it. That we may come back with some
new ideas, and he's incredibly clever, but even he was
not able to.
Speaker 4 (32:43):
Bring one, to bring one fresh.
Speaker 3 (32:45):
Unfortunately, the market is in such a bad place that
I think that would take another year of rehabilitation, which
it cannot be argued. We can get things wrong, I'm
often wrong. It cannot be argued in my view that
we are not the most positive influence on the investment
trust market in the UK, because first we bought two
billion when institutions in retail wanted out. Second, we are
(33:08):
advocating for better governance, and five of the seven funds
as I talk to you today have announced change that
will be positive for shareholders that they would not announce
for the three years that we were asking them to.
But only in the last two months have they made
these funds made these five announcements. And so we're making
governance better, We're pushing prices higher through activism, and we
(33:29):
are buying We're going to be buying a lot more
of it. So we are the most positive influence in
the space. That's not what I came here to do.
I came here to make money for my clients. But
I'm quite excited to take again portfolios of Tesla and
super micro Computer, sell them, maybe not SpaceX as we said,
sell them and invest it back into the UK trust
(33:51):
market and for SAPA to expand its footprint. We are
going to be hiring people in the UK and I'm
going to be over every month for the next few months.
Speaker 2 (33:59):
Into the seven that are wind the menu. Is there
one that you're particularly keen to you get you get
under control or is it much of a muchness As
far as you're concerned.
Speaker 3 (34:11):
My view is let the voters decide. I don't have
any animist towards any manager where I'm like, I really
want to win that one. We decided, you know, maybe
a question you haven't asked, why did you do seven
instead of two? Why did you do seven instead of one?
Hopefully you want to ask why did you do seven
instead of fourteen?
Speaker 4 (34:28):
Right?
Speaker 3 (34:28):
Seven was quite a load. The reason we did it,
I'll tell you it's interesting. I've seen everything. I've been
in this industry since I was fifteen years old. I've
seen good behavior, bad behavior. We have an investor for
a decade in Europe that will not invest in activists.
They just have a rule. We don't want to be
a part of activism. You might cause a steel mill
(34:49):
to shut down, you might cause whatever. But for SABA
we make an exception because you're pushing back against acid
managers that are not treating the investor as well, and
we want to be a part of that. And so
in a sense it's eschief friendly for us to be
pushing for better governance, which we inaudably are. And this
whole space is one where I've seen everything, and so
(35:10):
why seven instead of one? I won't necessarily say what
all of those things are, but we felt if we
only did one, those other six, not particularly those, but
other managers might put up roadblocks, might do things that
are entrenching that would then hurt our investment, hurt all
other shareholders' investment. And we wanted it to be a
(35:30):
big bang to take the industry by storm. And what
I think you're going to see, because people have now
made lists of the other twenty funds were involved in.
Speaker 4 (35:38):
Here's my prediction.
Speaker 3 (35:39):
You can have me back in a year if you'll
take me is those other twenty funds will have instituted
a change that helped the price go up, helped retirees
and SAVA investors alike make money, and the governance will
be better, but some of them can take action to
make the governance worse. I'm going to give you one
example in that case EOT where we came in. We've
(36:02):
been very quiet in London. We came in and said
there's a continuation vote. We're not being activist. There's a
natural continuation vote should the manager get to keep the assets?
Speaker 4 (36:11):
And we said we're going to vote against it. And
after that the manager announced some sort of buyback.
Speaker 3 (36:17):
We said the buyback's not big enough and if you
vote against us, this thing will go back to a
big discount. Institutions voted against us. There's an old boys
network that it does exist in the UK. I'll spare
you some of those details. And they voted against us,
and instead of getting out at ninety nine, I think
they had a fiduciary requirement to vote for getting out
(36:40):
at ninety nine because it was so clear that it
would go to a discount again. It went to a
fourteen discount. Now, what has happened since then here's the punchline.
The manager is now the third biggest owner of this fund,
so I'm not calling him out by name, but his
name is Alexander Darwell, so I am calling him out
by name title too. And he has bought seven point
(37:00):
eighty four percent of the fund. And that means that
an activist will have a very hard time because if
the activist comes in and buys five, Darwell can buy
another five. And so that is why investors are sitting
at a fourteen discount in that fund. But the USA
Fund of Bailey Gifford sits right now at no discount
because investors are expecting we're going to win, and they
(37:21):
liked the idea of having a choice of staying with SABA,
which is one awards for activism. Institutional Investor gave us
best Activists the last two years. We won best Credit
Fund two years ago. And I think people also know
that when they invest in these funds, they're investing in
my attention and my partner's attention, not team to member
at number forty seven in a group of one thousand people.
(37:43):
So those two contrasts of good governance versus creating obstacles,
I think is why you can imagine we went for
seven instead of one.
Speaker 2 (37:51):
Yeah, so that's interesting you've reased that because I Boy's
going to ask you clearly, So this seven is not
the end? Is far you have concerned? And you just
said there, what is there another twenty trusts that you
are involved in?
Speaker 4 (38:05):
Is that right?
Speaker 3 (38:06):
That's what people have put up on in messages And
I don't know if it's twenty or twenty six, Yeah,
but it ain't three.
Speaker 2 (38:13):
So from that point of how many more are you taralgetting?
Speaker 4 (38:17):
Is this?
Speaker 2 (38:18):
Is this just going to carry on? Or have you
got a specific kind of end game in mind.
Speaker 3 (38:24):
I'm not targeting anybody. I'm trying to make money for
my investors, and what's really nice is I get to,
in doing so, make money for all the shareholders of
these funds. We haven't taken green mail. Most of you
probably know what green mial is. We haven't taken special
deals which we've been offered by the way in the
past and in a situation in Canada, and we we're
here for our investors. We're not here to make trouble.
(38:47):
And so what I hope happens is that we win
a bunch of these and then the UK wakes up
and it's.
Speaker 4 (38:53):
And the managers start doing things that are pro shareholder. Now,
what is that? Okay? What could they do so that
we don't do this again?
Speaker 3 (39:00):
If they go in the marketplace instead of us going
in the marketplace and they sell a bit of IBM
and they sell a bit of T and they take
that cash and they buy themselves. They buy back their
own shares at a fourteen discount. They are immediately building
net acid value. If they retire shares that were at
one hundred at eighty six, they are building net acid value.
(39:22):
They're making money for their investors. Why don't they do that?
Pure and simple greed because they don't want their fund
to shrink. They don't want to make their fee smaller,
and so they've been greedy. In the case of EESCT,
one of the funds in our campaign, ESCT approved a
big buyback and that never consummated even more than a
(39:44):
third of it. That's a Janis Henderson fund. And I
think there's like a lot of irony going on. They're
complaining now that we have these big stakes, but they
didn't take the steps they could have bought these stakes.
They could have made money for their shareholders. And the
great irony of Janis Henderson, by the way, is that
they themselves, okay, they themselves voted to liquidate a UK
(40:04):
investment trust run by one of the most famous activists
in the US called Nelson Peltz. The fund is called
Tryon and an incredible hypocrisy. Janie Henderson voted to liquidate
try On. It liquidated, and Nelson Pelts sits on the
board of Tryon. And I just had a wonderful on
the board of Janie Henderson. I just had a wonderful
(40:26):
call with him. And I think this idea of SABA
has this personal interest in taking over these funds, their
own personal interest in keeping these funds despite in some
cases terrible performance, their own self interest is laid bare.
So I know that's like a very long answer full
of chock full of ironies. But I think we're we
are the positive change. And if they what they can
(40:47):
do to forestall activism is fix their funds so that
SABA doesn't.
Speaker 2 (40:51):
Have to I mean, from that point of why are
the challenges that people perforward? Is this basically and I said,
cothered an exercise because we didn't We just talked about
fees because obviously you guys and fees as well from
the kind of amount of the assets that you've got
under management. I think I get the impression that you
already answered that one to be honest in the last response.
(41:13):
But do you have a response to that.
Speaker 4 (41:16):
Yeah.
Speaker 3 (41:17):
Look, by the way, it's very clear Bloomberg isn't throwing
softballs at me. These are like challenging questions. So are
we trying to gather assets? We could liquidate the funds
like Janis Anderson did to Nelson Peltz. So we're trying
to keep it alive. What is keeping it alive?
Speaker 1 (41:32):
Do?
Speaker 3 (41:32):
What's the positive benefit? I'm going to take that capital
and invest it back into the investment trust sector, which
should have a positive effect on the sector.
Speaker 4 (41:41):
And there's demand for what we do.
Speaker 3 (41:43):
We run a business, and if investors, if investors don't
want it. In the case of the Bailey Gifford KEPC
fund and another fund run by Janis, by the way,
they were stuck. Bailey Gifford kept one hundred percent of
them one hundred percent of the fees. We're going to
give people who want their money back effectively some most
or all of their money back in a way that
(42:04):
should answer the question for itself. So we were holding
ourselves to a much higher standard than these very managers.
And I think that when you have two hundred and
seventy somethingter trust in the UK mostly underperforming. One of
the things that I had a great conversation with the
head of the industry Group AIIC for UK Investment trust
and he said, one of the great things about investment
(42:25):
trust is they can hold less liquid assets and even
if music royalties hypnosis became a problem until it wasn't,
there is real benefit because you couldn't hold that in
an ETF structure. And I said, I agree, and actually
investment trusts are not very liquid and are a perfect
thing to be held in investment trusts, right. We really
think that to have an offering like ours is bringing
(42:48):
new ideas to a one hundred and fifty year old space.
And it's about time that there was an opportunity for
some of your listeners to say, hey, this guy doesn't
it sounds like he clearly from the reaction, he's getting
stuffed and he's already gone five of the managers to
announce things they woudn't announced for the first three years.
So maybe I want to invest alongside of that in
a reasonable way.
Speaker 2 (43:08):
One thing I wanted to ask you, and this is
slightly different to the other question of actually you're you're
a gamer as I understand it, and I know that
some famous fund managers like ol Gross for example, always
talk about poker as an analogy for investing your game
a choice used to make chess. And I was just
wondering what you feel your background there, because you were
(43:29):
like number two in the US at one point, Is
that right?
Speaker 4 (43:31):
Not quite? I was number two for age fifteen sixteen?
Speaker 2 (43:35):
Oh yes, yeah, yes, a child prodigy, a bit like
a rowin chancellor here. But so, how do you think
chess has influenced your investment style? Would you bring from
chess to invest in?
Speaker 3 (43:46):
By the way, Rachel Reeves, I got to meet her
one time because of chess.
Speaker 4 (43:50):
It was not a very.
Speaker 3 (43:51):
Memorable meeting, by the way, and we were in a
group and she came along and we went to Pete Express.
So I have a long history with chess and Rachel Reeves. Actually,
because of some of the changes caused a lot of
discontent in your equity markets and sellers of the of things,
including investment trust, I want to say that the investment.
Trust problems are not problems only of their own making.
(44:14):
Let's leave it at that, since I was there to
stay in good stead with her, look chess, blackjack, poker.
I never really played poker till I was thirty or so.
And an't you Jane, just a brilliant man. He called
me and said, I got you invited to Warren Buffett's
poker tournament. Do us proud? And I said, on't you?
I think you confused me with confused poker with blackjack
(44:34):
or poker with chess. I don't play poker. And he said,
you called me from the airport in Omaha, Nebraska. I
just met Warren Buffett. I said I don't play poker,
and he said, now you do, and he hung up
the phone on me.
Speaker 4 (44:46):
And I ended up through a lot of luck.
Speaker 3 (44:48):
I start this conversation with you talking about luck, I
ended up with a lot of luck. I was in
one case down to one card to come, and I
was three out of four to lose, and I won
a Maserati and I didn't have a driver's licen so
I was that New York kid that didn't drive. So
I had to go get my driver's license. I have
this history with games which has been just fantastic. But
I think, for the purpose of this conversation, closed end
(45:11):
funds and UK investment trusts are very similar to blackcheck
because you know the discount.
Speaker 4 (45:17):
You know what we're talking. You know, no one's disagreeing.
Speaker 3 (45:19):
Should Facebook stock be at five hundred or four hundred?
This is we take the price as it is, and
we still know what the discount or a premium is.
We know what the discount is. And in blackjack, we
know what the count is and we know what the
odds are. And this is the one arbitrage what I
don't want to leave you with. This is the one
arbitrage where I can control my own destiny because a
(45:40):
share is a vote, and if I get enough shares
and I get enough followers, I can actually get the
manager to be replaced, and that manager should not want
to be replaced. We've only done it twice in twelve years.
What we're doing now in the UK we have done
twice in twelve years in the US despite having more
than seventy campaigns. So why are we doing it now
(46:01):
here in the UK. Because the managers did not listen
to us. We came to them. We said you should
do with an aggressive buyback, you should do with a tender.
You need to narrow your discount, And for three years
the discounts were not narrowed. And so in blackjack. In
the end, you get to know if you played down
to the very last card, you would know exactly what
it is here. If we owned fifty one percent of
(46:22):
the shares, we would know exactly what the outcome would be.
Speaker 4 (46:25):
But let it be left to the voters. The managers
get to call them. We don't.
Speaker 3 (46:28):
So I'm here with you in this lovely conversation to
tell the retail investors we are here alongside you. We
have your interest just like you have our interest, which
is a higher price. The manager's interest is to keep
their fees and to excuse their underperformance.
Speaker 2 (46:44):
If you get one message to get to the rest
of the investment trust sector, she's someone open the sentence.
Speaker 3 (46:51):
Look, let me say this. I would bet what are
they saying you? It's dollars to donuts that the other
twenty funds that we owned have had meetings about.
Speaker 4 (47:02):
How to get their share price up, and you did.
I don't know you did, but I do know you did.
Speaker 3 (47:07):
Logically you did and think about this small investor that
we are a positive agent for change and we are
going to invest not just the two billion we have
so far, but we are going to invest more back
into the sector. And what you will see which I'll
give you an anecdote. In the US, there is a
fund the ticker is NHS Nancy Harry Sam. They after
(47:30):
quite a bit of back and forth, they did a tender,
they did listen to us, and after that their shares
traded so much better that they were able to issue
more shares two different times. And so looking out five
years from five years later, their fund is now bigger
because we help them fix their fund after a lot
of back and forth that they otherwise wouldn't have had.
(47:51):
This is about too many sellers, not enough buyers. If
you buy your back your shares, if we buy back
your shares, you will be able to grow the UK
Investment trus space. And so that's my message to the market,
is that I know the seven of you don't think
we come in peace, but for sure there are hundreds
of thousands of small investors that have benefited every time
from our activism. Whereas in normal activism, if you try
(48:13):
to turn jcpenny into Apple Computer. You can actually do
quite a bit of damage closed end fund and investment
trust activism, especially because we're giving liquidity. You can take
that money you want to be in small stocks, you
don't want what we do, take your ninety nine percent
and go buy another one in eighty nine percent, Rinse, repeat.
That's the opportunity for the small investor who doesn't want
(48:33):
SABA capital.
Speaker 4 (48:34):
After this is all over.
Speaker 3 (48:36):
If you don't, okay, fine, take your ninety nine vote
for us, get your ninety nine, go buy the exact
same thing in eighty nine and maybe find an ETF
that has lower fees. So we're really giving investors options
whereas they were stuck and a lot of institutions had
no choice but to sell. And that's a sorry situation.
And even those ones, I hope they support us, they
(48:56):
should be very happy for our involvement.
Speaker 2 (48:58):
Well, you just giving me the head. It's going to
be who boys, Wayinstein fixed the NHS. I think that'll
be very click beity here. Thanks a lot for your team.
The one other thing with ASKI boys is so say
we look back. You went out here three years out.
You'll be judged doing Saba's three year performance from now.
What would count as success.
Speaker 3 (49:20):
First that investors were able to get that exit, and
that if they then look at the ones who stayed in,
that they would find something that I truly believe. I
look at all the businesses that SABA does, because we
do a lot more than investment trusts and closed in
funds going I look across the businesses. None of the
other businesses do I have any sort of control over
(49:41):
the future. Predicting the future is hard, but this business
is something that is far easier. If you buy something
at a fifteen discount, and sixty times in a row,
you were able to get that discount to shrink, rinse, repeat,
you were creating value for your investors. So success to
me three years later would be that what we be
able to do for the last twelve years for our
(50:02):
clients is repeatable. I think it's even more repeatable because
now we carry a bigger stick. We have six billion
invested in the space globally, and that because of that,
managers will do the right thing and we will deliver
super normal games to our investors because discounts will narrow
because of us.
Speaker 4 (50:21):
That's my goal.
Speaker 3 (50:22):
We might fall short, but for the last eight years,
it's been If you look at that et off, it's
been a great ride.
Speaker 2 (50:28):
Okay, thanks very much, boys, really appreciate your time, my pleasure.
Thanks for listening to this week's Medon Talks Money. If
you like a show, rate and review and subscribe whatever
you listen to podcasts and keep sending questions at comments
to Medon Money at bloomberd dot net. You can also
(50:48):
follow me and Menon on Twitter or x as us
now Knowing I'm at Join Underscore, Stepic and Medon is
at meddon sw This episode is hosted by Me Joined
Stepic was juiced by Summersadi and Moses and dam and
special thanks to bo Has Weinstein
Bloomberg Audio Studios, Podcasts, radio News. Welcome to Maren Talks
Money the podcast and people who know the markets Explain
the markets. I'm Meren some set web. This week we
are doing things slightly differently. First of all, it is
(00:25):
not me who interviewed our main guests for the week,
but in fact it was John. I'll explain to you
why in a minute. Also, we're dropping the episode slightly
early because it's got rather more immediate news value than usual. Right,
So this podcast is all about investment trusts, which are
effectively companies, the business of which is to invest in
other companies. They're an awful lot of them listed in
(00:47):
the UK. They give investors, who are of course also
shareholders in the companies, access to everything from private equity
to UK equity income, to smaller companies, emerging markets, Japanese equities,
just to name few things available. They have a few
advantages over regular investment funds. They can borrow to invest
for example, and crucially, just like other listed companies, they
(01:09):
have boards of directors whose job it is to represent
the interests of shareholders or investors. So here's the thing.
In the last few years, the sector has not been
doing so well, the shares have on average been trading
at historically high discounts to their net asset value, something
that suggests a lack of demand for the shares, and
the underlying performance in a couple of cases hasn't been
(01:29):
great either. So enter US activist investor SABA Capital. About
a year ago, Boas Einstein, the founder of SABA, noticed
the large discounts in the sector, sometimes up to around
twenty percent, meaning that you could effectively buy the assets
in the portfolio at a twenty percent discount of their
market value. Saba started buying the shares in seven of
(01:50):
The trustee now has stakes ranging from nineteen to twenty
nine percent, enough for him to call for general meetings
at all seven to replace the current board and replace
them with his own people. Well, you will know these trusts,
or at least you'll have heard of some of them.
There's Herald Investment Trust, Edinburgh, Worldwide, Bailey give a US Growth,
so big names in the sector. In this podcast, John
Stirbeck talks to bos wy Inside about why he's doing this,
(02:11):
why he's interested in UK investment trusts, and what investors
can expect if he succeeds. Two more things First, regular
listeners will know that I sit on the board of
a couple of investment trusts. Neither I hears him to
add or among the seven, but nonetheless, as I have
skin in the sector game, John and I figured it
was best if he did the interview. Second, this is
a test of shareholder democracy. The platforms have all made
(02:32):
major efforts to make it easy for you to vote
on the shares that you own. Now's your chance to
do so. Have your say either way. Over to John.
Speaker 2 (02:45):
Great to have you in the Shaw Boys look forward
to hearing all about this because obviously it's caused a
big start or what he had in there the UK.
But before we get into your campaign, do you want
to tell us a bit about yourself and about your
background and a boit Saba and it came about.
Speaker 3 (03:02):
Sure, so thanks for having me. I worked on Wall
Street ever since I was fifteen years old. I was
very lucky to get a summer job, and thirty six
years later, the excitement of the ever changing nature of
markets and mispricings and arbitrage really stays fresh with me.
And I first started out working at a couple of
banks and then in nine I started SABA. I had
(03:26):
spent the weekend of Lehman Brothers failure at the New
York fed which was one of the most dramatic nights
of my life. And I got to see a lot
of crazy things over the years. I was trading when
the towers were hit by the nine to eleven attacks
and actually spoke on the phone with someone in the
towers the lines were working, who was asking for help
(03:48):
and advice. And just to have been there at the
moments in history, whether it's financial history or global history,
but to be a trading risk has been an incredible experience.
Speaker 2 (03:58):
Just one thing. Though, you said you started Wall Street
when you were fifteen. That's quite precocious. How did that
come about?
Speaker 4 (04:04):
There's a lot of luck in everything.
Speaker 3 (04:06):
And I happened to have been walking by the job
postings in my high school and there was a woman
who had gone to a similar school who needed somebody
at a deep voice.
Speaker 4 (04:15):
As I talked to you today, my voice.
Speaker 3 (04:17):
Was actually quite unusually raspy, but I had a similar
voice when I was fifteen. And she was a very
successful financial consultant named Jeanine Crane. Her mother actually was
one of the top ten brokers and Merrill Lynch and
this team needed someone to make appointments for them, and
I got to sit there and listen to research channelists
talk about stocks, and I just had the most incredible
(04:38):
experience and things build on each other, and I was
able to parlay it into a interview at Goldman Stacks
and I was able to get a summer job on
the trading floor when I was nineteen.
Speaker 2 (04:50):
Well, fantastic experience. So you found it SABA in two
thousand and nine. Tell us a bit more about that
and how you eventually came to focus on c closed
end finds in the US. Closed end finds are basically
what we call investment trusts in the UK.
Speaker 3 (05:07):
Yeah, let's call it investment trust Today. I can deal
with the cross continental differences, so we can even say
tomatow if you make me so right now, I think
I'm having some thrown at me by some of my adversaries.
Speaker 2 (05:20):
Possibly.
Speaker 4 (05:21):
Yeah.
Speaker 3 (05:21):
I started SAVA in a very difficult time for markets.
I started amidst the ashes of Lehman Brothers, the global
financial crisis. Bernie madeoff and I started very modestly. We
raised one hundred and sixty million by the time we
launched August nine, and then because of I would say determination,
force of will, and being able to convey a story
(05:44):
about the opportunity in relative value trading. We're not a
long biased investor. For the most part, I was able
to take the firm from its humble beginnings. We got
up to about five and a half billion by March
twenty twelve, which was really quite a feat. But our strategy, jeez,
have really evolved from more narrowly focused on the credit
(06:04):
markets and credit against equity and having now moved for
the past more than a decade into different kinds of
arbitrage that we hadn't done before, namely investment trusts.
Speaker 2 (06:16):
Okay, so targetting closed end funds and presumably that's to
try and narrow the discount. Is that your primary goal?
Speaker 4 (06:24):
Yeah?
Speaker 3 (06:24):
So while there are managers that have alpha, these funds
in the main have destroyed value bit by bit through
either high fees, which some funds have but not necessarily
the ones that we're talking about today, or poor performance
because of whether it's a b team that's running it
for a big institution rather than the top people, or
(06:45):
just bad luck, bad decisions, or really investors feeling like
they want out of this product. And they want to
go into more popular products like ETFs. Funds can trade
a big discounts, and that is what attracted me. It
wasn't the chance to invest a lot inside a manager.
It was the chance to buy a pound for eighty
five p and turn it back into a.
Speaker 2 (07:05):
Pound over here. For investment trusts, there's a lot of retail.
Speaker 4 (07:10):
There's a lot of.
Speaker 2 (07:11):
Private investors, small shareholders in the US. Is it like
that or does it work institutional holders for your particular funds.
Speaker 3 (07:19):
So the closed end funds in the US or the
investment trusts in the UK that we buy are held
very much by retail investors. There can be institutions in them,
and in fact there are in various funds that were
invested here in the UK or in the US, but
saba's investors. So the investors that come into our funds. First,
we manage two closed end funds in the US, and
(07:41):
we manage an ETF of closed end funds. Those are
primarily retail investors, but our hedge funds are primarily institutional investors.
They might be a pension fund in the US that
is considered a sophisticated institution, but it represents tens of
millions of retirees. So ultimately we are getting back to
mom and pop no matter how you look at it.
And I think it's worth adding that actually our second
(08:05):
most popular country to invest in sabas after the US,
is the UK. We have significant institutional investors upwards of
single tickets of three or four hundred million dollars from
some UK institutions.
Speaker 2 (08:19):
Okay, again to your actual campaign and the focus on
the UK. Why are the UK specifically and why now?
Is that something that particularly caught your eye.
Speaker 3 (08:31):
Yes, So we started investing in closed in funds for
the firm in twenty and thirteen, so we're up on
eleven years now, and I'd invested in them personally very
long time ago, so knew quite a bit about them.
But so the UK was something where they've been a
trade or two to do from the very beginning, but
not not really something more than that until three years ago.
Speaker 4 (08:53):
So I want to break that down for you.
Speaker 3 (08:55):
We had spent the first in years squarely focused in
the US. We've been had as much some time investment
in Australia than we as we had in the UK.
Why Because, to the UK's credit, the governance of the funds,
the rules of how they treat their shareholders was quite
a bit better than the US. There are things that
are done in the US to the investors by the
(09:17):
manager that it would just shock you. So the better
governance was appealing to us. But there wasn't much of
a discount because of that governance. Because the industry, which
is one hundred and fifty years old in the UK,
had done a better job of treating its investors. That
led to funds trading better. The industry grew and the
UK was about as big as the US, even bigger
until three years ago. So I want to put a
(09:39):
pin in that and then tell you what happened over
the past three years, which is why we jumped in.
Speaker 2 (09:43):
That's interesting. So you really actuallycing this back to twenty
twenty one roundnet and the else because obviously we've been
agonizing a lot in the UK about the UK stock
market generally and the idea that is praiced a discount
to markets more broadly, and obviously particularly the US, because
the US has beaten everything. But what why is it
you feel happened in twenty twenty one that particularly made
(10:08):
everything worse.
Speaker 3 (10:09):
Yeah, So first, just so everyone understands a lot of
these funds. In fact, the ones that we own not
just UK stocks. In fact, they might own majority US
they might own Nvidia and Tesla, let's say, and so
their collection. What are these investment trusts? For anyone listening
it doesn't really know much about it. They are a
collection of assets managed by a manager, a venerable manager
(10:32):
that was able to raise the money.
Speaker 4 (10:34):
And it's just a pool.
Speaker 3 (10:36):
And ettfs are much more common in the US these
days because you can get out on of these notice
at fair price at NAV and the fees are often half.
But these investment trusts which own again a collection of stocks.
In twenty twenty one, around the time that inflation was
considered to be starting to be a problem and we
had the LDI crisis in the UK, it created sellers
(10:58):
of assets and there weren't really too many natural buyers.
So what happened was the market went from very little
or no discount to big discount. And we didn't know
if that was a temporary feature because it wasn't generally
true in the UK, and so we started to buy
at eleven percent discount, thirteen percent discount, eighteen percent discount.
Even some funds that at private holdings you could buy
(11:22):
a twenty five percent discount, even forty percent discount if
people really thought it was troubled. So you can get
enormous discounts. And I want to just add one more point.
This is not discount to someone's fair value about where
UK stocks ought to be or ustoks. This is discount
to the closing price. This is an actual discount, not
a hypothetical discount. And so that's when we jumped in.
(11:44):
And we had believed in the beginning that it was
going to be transitory, that the discounts would go away,
but instead it got worse. And I can take you
through that three year timeline very briefly if you want.
Speaker 2 (11:55):
Yeah, absolutely well, first of all, just spail fort of them.
So there are seven investment trust that you've targeted just now,
and you've proposed and requisition general extraordinary general meetings at
the seven of these with the aim of replacing the
boards basically. And the funds are Bailey Gifford, US Growth, Keystone,
Post of Change Investment Trust. All of those are Bailey Giffard.
(12:17):
There's Jenis Henderson, which runs Henderson Opportunities Trust in the
European Smaller Companies Trust and then the other two are
CQS Natural Resources Growth and Income and Herald Investment Trust. Now,
I suppose the thing that jumps out to me certainly
is these trusts all our growthy trusts. Is there a
(12:40):
particular reason why you've gone for that kind of area.
Did the discount prey much greater because of their rise
and interest rates for example, like some pople are pointed
out that the last three years have been particularly bad
for these kinds of trusts, or is there another reason
behind that.
Speaker 3 (12:55):
No, we wake up every morning and we look at
the five hundred different options for us that half of
them are in the UK, almost half in the US,
and then you have a little bit of Canada in Australia.
We look at where are the biggest discounts, And so
it's less what saba's view on the small cap equities
and more where are the pressure points? Where are investors
so frustrated that they'll sell these things at the biggest discounts.
Speaker 4 (13:16):
And I think it's all.
Speaker 3 (13:17):
Too convenient to say, oh, this hasn't been a period
with rising interest rates that's been good for stocks, because
look today at how well the markets have done. You
started with the Bailey Gifford Fund maybe a UK institution,
but the fund is called the ticker is USA. It
owns US stocks. We know that when you hold Nvidia
and Tesla and Microsoft, you're winning. But the shocking thing
(13:41):
is that when I take these past three years and
we strip out the discount, we just look at how
did the stocks do in their portfolio. You have benchmarks
that they themselves selected which are up a lot despite
the points you made about higher rates. Look in the
US at the s and p up near six thousand.
Where was it three years earlier? And so investors went
into the funds had all the expectation in the world
(14:02):
that if markets went up, if stock markets went up,
they would go up. If markets went down, they would
go down. But we've seen a big bull market and
here's the shaker. These seven funds the past three years
have lost collectively, I'm not nitpicking on the worst one,
have lost fourteen percent for their investors. And that's why
investors are so frustrated. That's why these things went to
(14:25):
big discount and state of big discount. It was because
of on the average terrible performance. Let's call a spade
a spade. If the portfolio loses fourteen percent and the
market makes forty percent.
Speaker 4 (14:37):
You have a problem with your investors.
Speaker 2 (14:39):
You've kissed clayed them as the measurable seven, which is
obviously quite a catchee. Can a phrase the reference in
the magnificent seven? Obviously each individual trust has got different
admirable performance in different fact there's been for examples, to
take one that has been highlighted specifically, and I think
you've actually acknowledged this herald investment trust as a kind
(14:59):
of long and in sort of investor in smaller tech companies.
And while yeah, it's maybe struggled over the past three years,
it's it's got a very good long term track record
and obviously quite a lot of loyalty because it's had
to say manager for a very long period of time,
and she's very highly respected. Do you think it's necessarily
(15:22):
reasonable to be bracketing all of these kind of trust
as miserable on.
Speaker 4 (15:27):
The average, they're miserable.
Speaker 3 (15:29):
So you're right, So let's talk about one of the
best ones in terms of investors esteem. But I also
want to tell you you're magnificent because you're willing to
overlook three years of that reforming.
Speaker 2 (15:40):
I'm a long term investor. I'm a long term investor.
Speaker 4 (15:43):
Boy, I love it.
Speaker 3 (15:46):
You should come invest in our funds because because we
live in a world where if we have one bad
quarter or one bad year, you know, you make money
for your clients, you raise money, you lose money, you
lose investors, and you're willing to overlook. So I just
pulled it up. So yes, So the average lost fourteen
percent this fund. If I just take January first, twenty
twenty two, okay, it's actually lost a little bit of money.
(16:09):
Our US products that just owns these things. We just
owned a bunch of closed end funds. It made forty percent.
If I pull up the S and P, it's going
to have made an ungodly amount of money. And actually,
Miss Potts, her largest holding coming into this year twenty
twenty four, became a Meme stock of stores. It went
up three hundred percent. So somehow there are things in
the portfolio that are just doing so poorly that you
(16:32):
can have markets up so much, yet yet her portfolio
lose a little bit of money. And this is what
I would say. Her track record is fantastic since nineteen
ninety four. Okay, I acknowledged it. And that's also why
we decided to sweeten the offer for investors who may
be attached and may be so forgiving that they don't
care that the markets went up forty and they and
(16:53):
they lost a little bit of money. And so we've
offered in that fund that any investor that wants to
get undred percent of their money back at ninety nine
ninety nine, meaning ninety nine percent of asset value, they
may do. So we would offer that to them, which
is a style of governance that far exceeds the industry,
not just in the US in the UK, which I'll
(17:14):
explain in a minute, but let me just add that
the closed end funds HRI when we started buying it
in twenty twenty two, it was north of a twenty
two percent discount. So as much as people love Katie,
they didn't love her enough that there were no buyers
willing to pay nineteen eighteen seventeen, and we were able
to buy big stakes at double digit discounts all the
(17:34):
way through until we showed up a month ago with
a very big position.
Speaker 4 (17:38):
And so I pona just say one thing.
Speaker 3 (17:40):
We have helped thousands and thousands of mom and pop
investors that own these things take their portfolio from seventy
eight percent of NAV, the price has gone up significantly
now to almost NAV thanks to our activism.
Speaker 2 (17:55):
I mean, do it. I think a lot of investors
of quite excited about the fact that there is someone
like Sabah and some of the other activists paying attention
to the investment trust sector. I guess where I suppose
some of the concerns that are whether this is essentially
(18:15):
a time when the UK is out of favor, and
it's one thing to be comparing the performance to the
US market, but either the UK itself, as I said,
is very well known that there's a wider kind of
market down or on the UK, and this kind of
macro environment has just been very bad for most things
(18:38):
that are UK listed daft things like oil companies trading
a massive discount to their equivalents in the US, even
though they all basically own very similar assets and are
very similar sort of strategies. And I guess that's the
question is like, is good that you're drawing attention to
the massive discounts in this area, but is it follow
(19:01):
on that you would then be a better manage it
all of these assets.
Speaker 4 (19:06):
That's a fair question.
Speaker 3 (19:07):
I think if you take a step back, SAVA has
bought two billion euros worth of these funds. Okay, And
when we look at the holder's list and what's been happening,
and I can read articles that were in the Ft
or in Bloomberg the last three years that were so
negative on this sector. When we look at the holders list,
we see all the top investors selling and only one
(19:29):
institution buying us. So first, if we didn't buy, this
market would be in much worse shape. Secondly, we do
not come as American American hedge funds to go and
cause trouble in the UK. We are equal opportunity. Okay,
we're causing trouble as they see it in the US. Okay,
tens of thousands across even a few funds, so hundreds
(19:53):
of thousands if you put funds together of investors that
have seen the benefits of us making their portfolio go
back up to nev and the multiplier effect them the
interest on interest, the time value of money has been
so significant. So don't we not only have caused so
far the portfolio to rise. But let's look a step further.
(20:14):
If we're successful here, we would endeavor to bring the
first investment trust to the UK that should allow investors
to benefit from the opportunities in these discounts rather than
suffer from it, rather than be a casualty of it.
So we would have an investment trust made up of
some of these seven which everyone's were successful in. And
(20:36):
if we're given the mandate, where we would use our
acumen to go in the market, find value, buy things
at eighty six, turn them back into one hundred as
we have in the US. You could see our track
record in our US vehicles and that's a really exciting
opportunity for many UK investors who want to profit from
these discounts rather than suffer from it. And lastly, you
could look at the portfolios as they are today. You
(20:59):
again started with the one that's US based, even though
it's Bailey Gifford. Money would be coming out of the
US equity market and be put directly into what the
market that needs it the most, the UK investment trust market.
We would take that capital and buy billions more of
UK investment trust. We would push the industry to be
governed better and to trade better, and I think we
would eventually be seen even by the managers as having
(21:21):
done a great service to the industry.
Speaker 2 (21:23):
So I suggest to be clear, your plane would be
whichever ones you get hold of. The main goal is
to mostly liquidate those portfolios and then use that money
to buy other discounted investment trusts. Is that fair or
is it more complicated than that?
Speaker 3 (21:41):
There's one thing in between that we are willing to
do that. For example, Bailey Gifford when they took over
Keystone KPC, they did not give this their investors a chance,
so they were not the prior manager. I believe it
was Aberdeen. They took over the fund, change in manager,
change in strategy, and they did not offer those original
investors a chance to get out. They were then trapped
(22:03):
with this new manager, albeit a venerable manager. But the
performance of Keystone has been disastrous. If anyone wants to
look up what the definition of a disaster is the
Keystone Positive Change Fund. I think over five since they
took it over underperform their benchmark by one hundred percent
or something impossible, or maybe it underperformed by seventy and
(22:24):
underperform us by one hundred so anyhow, so they were
not afforded the chance to exit. What TSAVO would do
upon the change in the board is offer investors significant
liquidity in the case of the sixth funds out of
the seventh significant and in the seventh complete. So anyone
who wants to get out can finally, after years of struggling,
get out near nav at ninety nine percent. And whoever
(22:47):
wants to stay in and be a part of the
future will stay in and be a part of our
product offering, which will go into the investment trust market
each day and find opportunity.
Speaker 2 (22:58):
Just don't own a practical point of view there. The
most famous UNLESSTED asset that some of these trusts owned
is SpaceX elon Musk satellite operator. What would you do
about reason liquidity and order? How would you deal with
unlessted elements to the portfolios?
Speaker 3 (23:14):
The portfolios again, I think it's worth talking about the
interesting bits. But the portfolios are something like ninety eight
percent public. Okay, there's this two percent private bucket, and
the biggest holding in the private bucket is actually captured
everyone's imagination is SpaceX. Now there's a difference between being
private and a liquid and private, and everybody wants to
(23:36):
buy it.
Speaker 4 (23:36):
First it would not.
Speaker 3 (23:37):
Be hard to sell it, but second we are considering
for the ones that have SpaceX, a different exit, a
different solution, one that will be seen in hindsight as
having been We've considered different for different funds, different outcomes,
And with SpaceX, I think you're absolutely right, it deserves
consideration for perhaps allowing investors to stay in it if
(23:58):
we can find a way to do that. And I
can envision a number of different scenarios for that, and
I think SpaceX deserves to stay in the portfolio for
the most part, not promising the way things will be
in six months, but I think you bring up a
great point.
Speaker 2 (24:13):
The other bit of pushback that I've seen from various
commentators is this idea that so a lot of these
trusts do have a lot of detail shareholders, and one
thing that retail shareholders, mostly because the mechanisms haven't been
there historically although they are now, is that they're apathetic
(24:33):
when it comes to voting. And one of the points
that lots of people have made are the sabbats coming in,
We've asked for these extraordinary general meetings, and then the
risk is that essentially you the vote goes your way
because no one turns up on the day. Is that
something that has factored in to your thinking, or is
(24:55):
this Do you feel this is unfair?
Speaker 4 (24:57):
What are you?
Speaker 2 (24:58):
How would you feel if a few when because oddly
any detail investors I actually turn up to cast the vote.
Speaker 3 (25:04):
Yeah, I think personally, if these funds had made their
investors a lot of money in this bull market instead
of making a negative return, I think many more retail
investors would turn up in support. Because there's a vote
in favor. There's a vote against, but no vote is
also a vote in a sense against the manager because
they are definitely getting the phone calls right. The manager
has the list of names. I have a big disadvantage.
(25:26):
I don't have that listen names. That's why I'm here
with you the esteemed journalist, to get the word out.
And we will have done this special webinar on the fourteenth.
People who want to go and see that can go
back and look on the website. So we're trying to
get the word out. They have the full list to
get that word out. So if they're decrying, no fear,
our investors don't vote. I didn't set up your electoral system.
(25:49):
It's actually a really interesting point because we had one
manager say to me directly. I spoke to them. They
said it's no fair. They said exactly what you said,
and they said, there are no institutional investors our fund.
I mean, you know what I said to them, Why
don't you go back one year or two years ago,
there were tons of institutional investors in your fund. You're
claiming everyone loves you, but they were desperate to get
(26:10):
out and to sell you into the marketplace at a
fifteen or twenty point discount. And so we've assembled a
portfolio of tortured souls, people that couldn't stay in, and
we have taken that discount, and now it's at a
very small discount, and the retail investor who did stay
in has benefited. It's the institutional that wanted out, and
here we are that institution is no longer there to
(26:31):
vote for them. I would submit to you that they
voted with their feet and they exited to us.
Speaker 2 (26:36):
So I think you've made that one very clear. Say
this small investor does tun up one the day because everyone, certainly,
in my experience, I haven't seen a campaign to get
shareholders out and voting like this one for a very
long time. So I mean, in terms of you have
pitched to the private investor. We've already told to me
what you've planned to do, But what is in it
(26:57):
for them? We could attribute the closing of the knave
descount to yourselves and say let's say that we say
that's all down this SABA. At this point, most investors
in these funds can exit or very close to enough
occasionally a premium to spend the trust just by going into
(27:18):
the market tomorrow and selling the shares. So what extra
is in it for them if they vote for your
changes rather than against your changes?
Speaker 4 (27:29):
So there are a few features. You're right.
Speaker 3 (27:31):
The small investor could sell a small amount of shares
and get out at this price that now reflects the
optimism that we will win.
Speaker 4 (27:38):
Right.
Speaker 3 (27:39):
And if they don't want to sell, that's because they
want to give our new proposal, our new product to
this UK Investment Trust, our opportunity Trust to benefit. They
could go look at our ETF. The ticker is CEFS.
It has an eight year track record of success. I
just pulled it up as I'm talking to you now,
and I'll just tell you that since twenty seventeen. In
(28:00):
since twenty seventeen, it's total return is one hundred and
twenty five percent and the KPC fund is down twelve
percent over eight years. One lost twelve one maye hundred
and twenty five. So you could look to that as
a reason to stay in our proven track record of
eight years. You could look at the why vote for us?
If you vote against us, it's very possible that the
discount will creep back into to the product. There's an
(28:22):
example of a fund, the European Opportunities Trust EOT, where
we told investors vote for US if you vote against us,
we believe this fund will go back to a discount.
It's sitting at minus fourteen as I speak to you,
and they had a chance to exit at ninety nine
at minus one, So there's protecting their own investment means
voting for US if.
Speaker 4 (28:42):
They want to exit. Good for them.
Speaker 3 (28:43):
But what we find in the US John is that
sometimes even if SABA didn't vote, we still would have
had more votes. There's enough retail discontent. If you go
through eight years and you underperform, or five years or
three years, you're going to create an investor base that
is to listen to other ideas, and unfortunately for the product,
they don't have a mechanism to get out at an EV.
(29:05):
We're their mechanism, we're their advocate. So there's a great
reason for the retail investor to vote for us. Now
I'm not naive. I know that they don't get to
hear me on the phone, they don't get to get
emails from me, but they do hear their manager saying
that I'm going to cause death and destruction. And there's
been a lot of misinformation said, which I will have
cleared up by the time the votes are taken.
Speaker 2 (29:26):
Moving on to the boat, what you're planning to do,
as I understand it, is if they vote for you,
then clear out the old boats and replace them. And
you've already discussed having two board members, one correct me
if I'm wrong, a SABA board member, and the other
one can have chosen by yourselves. The one issue is,
(29:49):
as you've said, key governance is somewhat, if I understand
you correctly, somewhat better than it is in the US,
and two board members trust particularly whenever presumably each of
these trusts would be going through quite a significant restructure.
By the sounds of it, that sounds like a lot
(30:09):
of work for those individuals and boats here more typically
of more members what just can I answer to that?
It feels if too is late.
Speaker 4 (30:20):
To that way, I agree with you and it will
not remain too.
Speaker 3 (30:25):
We've done a lot since December eighteenth, and to ground
everything up and put it in place, we didn't have the
time to add thirty more directors to these seven funds.
I think what you could do instead of listening to
just my words is look at my actions in the US.
In the US, we manage two funds. The funds have
nine members each, eight of them are independent, and we
(30:46):
changed the governance of those funds to be more friendly
to the shareholder, less friendly to us as the manager.
We did that in twenty twenty four with a fund
we took over ticker SABA. We viewed it as we're
much more investor in this product than manager of this product,
and we want to show the managers what the best
(31:07):
governance is. That's why, unlike what Joanna Sanderson or what
Bailey Gifford didn't offer their investors in terms of liquidity,
they became the manager and they trapped people. They didn't
give them liquidity. We are giving substantial liquidity to six
and full liquidity to the seventh. So we're going to
in that same way of good governance, add a lot
of independent directors. We also, if we create a merger
(31:30):
of some of these funds, the independent directors will multiply.
But there's only one of me. Thank goodness, there's not
too me, right, can you imagine? So you're going to
be adding independent directors simply through merger and.
Speaker 2 (31:42):
The terms that UK is coming into the UK? Is
there a reason why you want to do it like
this rather than just setting up like completely a new trust,
launching a new trust to do this and I just
give all up. I guess the investment trust sect on
the UK as you see it.
Speaker 4 (31:58):
We might in the future.
Speaker 3 (32:00):
We've seen actually in the US our ETF continue to grow,
so there is demand new money right to go into
our products if you look up cefs and the AUM
growth the last few years. But the main reason is
because the sector is so beleaguered. I don't need to
reado headlines from Bloomberg and the Ft excoriating the performance,
(32:21):
the discount, the seeming inability for that discount to come
back for three years. So there is such a negative
view of closed in funds in the US and investment
trusts in the UK that actually no one's really been
able to bring a new fund.
Speaker 4 (32:34):
In the US.
Speaker 3 (32:35):
Bill Lackman tried to bring a closed end fund and
ultimately shelved it. That we may come back with some
new ideas, and he's incredibly clever, but even he was
not able to.
Speaker 4 (32:43):
Bring one, to bring one fresh.
Speaker 3 (32:45):
Unfortunately, the market is in such a bad place that
I think that would take another year of rehabilitation, which
it cannot be argued. We can get things wrong, I'm
often wrong. It cannot be argued in my view that
we are not the most positive influence on the investment
trust market in the UK, because first we bought two
billion when institutions in retail wanted out. Second, we are
(33:08):
advocating for better governance, and five of the seven funds
as I talk to you today have announced change that
will be positive for shareholders that they would not announce
for the three years that we were asking them to.
But only in the last two months have they made
these funds made these five announcements. And so we're making
governance better, We're pushing prices higher through activism, and we
(33:29):
are buying We're going to be buying a lot more
of it. So we are the most positive influence in
the space. That's not what I came here to do.
I came here to make money for my clients. But
I'm quite excited to take again portfolios of Tesla and
super micro Computer, sell them, maybe not SpaceX as we said,
sell them and invest it back into the UK trust
(33:51):
market and for SAPA to expand its footprint. We are
going to be hiring people in the UK and I'm
going to be over every month for the next few months.
Speaker 2 (33:59):
Into the seven that are wind the menu. Is there
one that you're particularly keen to you get you get
under control or is it much of a muchness As
far as you're concerned.
Speaker 3 (34:11):
My view is let the voters decide. I don't have
any animist towards any manager where I'm like, I really
want to win that one. We decided, you know, maybe
a question you haven't asked, why did you do seven
instead of two? Why did you do seven instead of one?
Hopefully you want to ask why did you do seven
instead of fourteen?
Speaker 4 (34:28):
Right?
Speaker 3 (34:28):
Seven was quite a load. The reason we did it,
I'll tell you it's interesting. I've seen everything. I've been
in this industry since I was fifteen years old. I've
seen good behavior, bad behavior. We have an investor for
a decade in Europe that will not invest in activists.
They just have a rule. We don't want to be
a part of activism. You might cause a steel mill
(34:49):
to shut down, you might cause whatever. But for SABA
we make an exception because you're pushing back against acid
managers that are not treating the investor as well, and
we want to be a part of that. And so
in a sense it's eschief friendly for us to be
pushing for better governance, which we inaudably are. And this
whole space is one where I've seen everything, and so
(35:10):
why seven instead of one? I won't necessarily say what
all of those things are, but we felt if we
only did one, those other six, not particularly those, but
other managers might put up roadblocks, might do things that
are entrenching that would then hurt our investment, hurt all
other shareholders' investment. And we wanted it to be a
(35:30):
big bang to take the industry by storm. And what
I think you're going to see, because people have now
made lists of the other twenty funds were involved in.
Speaker 4 (35:38):
Here's my prediction.
Speaker 3 (35:39):
You can have me back in a year if you'll
take me is those other twenty funds will have instituted
a change that helped the price go up, helped retirees
and SAVA investors alike make money, and the governance will
be better, but some of them can take action to
make the governance worse. I'm going to give you one
example in that case EOT where we came in. We've
(36:02):
been very quiet in London. We came in and said
there's a continuation vote. We're not being activist. There's a
natural continuation vote should the manager get to keep the assets?
Speaker 4 (36:11):
And we said we're going to vote against it. And
after that the manager announced some sort of buyback.
Speaker 3 (36:17):
We said the buyback's not big enough and if you
vote against us, this thing will go back to a
big discount. Institutions voted against us. There's an old boys
network that it does exist in the UK. I'll spare
you some of those details. And they voted against us,
and instead of getting out at ninety nine, I think
they had a fiduciary requirement to vote for getting out
(36:40):
at ninety nine because it was so clear that it
would go to a discount again. It went to a
fourteen discount. Now, what has happened since then here's the punchline.
The manager is now the third biggest owner of this fund,
so I'm not calling him out by name, but his
name is Alexander Darwell, so I am calling him out
by name title too. And he has bought seven point
(37:00):
eighty four percent of the fund. And that means that
an activist will have a very hard time because if
the activist comes in and buys five, Darwell can buy
another five. And so that is why investors are sitting
at a fourteen discount in that fund. But the USA
Fund of Bailey Gifford sits right now at no discount
because investors are expecting we're going to win, and they
(37:21):
liked the idea of having a choice of staying with SABA,
which is one awards for activism. Institutional Investor gave us
best Activists the last two years. We won best Credit
Fund two years ago. And I think people also know
that when they invest in these funds, they're investing in
my attention and my partner's attention, not team to member
at number forty seven in a group of one thousand people.
(37:43):
So those two contrasts of good governance versus creating obstacles,
I think is why you can imagine we went for
seven instead of one.
Speaker 2 (37:51):
Yeah, so that's interesting you've reased that because I Boy's
going to ask you clearly, So this seven is not
the end? Is far you have concerned? And you just
said there, what is there another twenty trusts that you
are involved in?
Speaker 4 (38:05):
Is that right?
Speaker 3 (38:06):
That's what people have put up on in messages And
I don't know if it's twenty or twenty six, Yeah,
but it ain't three.
Speaker 2 (38:13):
So from that point of how many more are you taralgetting?
Speaker 4 (38:17):
Is this?
Speaker 2 (38:18):
Is this just going to carry on? Or have you
got a specific kind of end game in mind.
Speaker 3 (38:24):
I'm not targeting anybody. I'm trying to make money for
my investors, and what's really nice is I get to,
in doing so, make money for all the shareholders of
these funds. We haven't taken green mail. Most of you
probably know what green mial is. We haven't taken special
deals which we've been offered by the way in the
past and in a situation in Canada, and we we're
here for our investors. We're not here to make trouble.
(38:47):
And so what I hope happens is that we win
a bunch of these and then the UK wakes up
and it's.
Speaker 4 (38:53):
And the managers start doing things that are pro shareholder. Now,
what is that? Okay? What could they do so that
we don't do this again?
Speaker 3 (39:00):
If they go in the marketplace instead of us going
in the marketplace and they sell a bit of IBM
and they sell a bit of T and they take
that cash and they buy themselves. They buy back their
own shares at a fourteen discount. They are immediately building
net acid value. If they retire shares that were at
one hundred at eighty six, they are building net acid value.
(39:22):
They're making money for their investors. Why don't they do that?
Pure and simple greed because they don't want their fund
to shrink. They don't want to make their fee smaller,
and so they've been greedy. In the case of EESCT,
one of the funds in our campaign, ESCT approved a
big buyback and that never consummated even more than a
(39:44):
third of it. That's a Janis Henderson fund. And I
think there's like a lot of irony going on. They're
complaining now that we have these big stakes, but they
didn't take the steps they could have bought these stakes.
They could have made money for their shareholders. And the
great irony of Janis Henderson, by the way, is that
they themselves, okay, they themselves voted to liquidate a UK
(40:04):
investment trust run by one of the most famous activists
in the US called Nelson Peltz. The fund is called
Tryon and an incredible hypocrisy. Janie Henderson voted to liquidate
try On. It liquidated, and Nelson Pelts sits on the
board of Tryon. And I just had a wonderful on
the board of Janie Henderson. I just had a wonderful
(40:26):
call with him. And I think this idea of SABA
has this personal interest in taking over these funds, their
own personal interest in keeping these funds despite in some
cases terrible performance, their own self interest is laid bare.
So I know that's like a very long answer full
of chock full of ironies. But I think we're we
are the positive change. And if they what they can
(40:47):
do to forestall activism is fix their funds so that
SABA doesn't.
Speaker 2 (40:51):
Have to I mean, from that point of why are
the challenges that people perforward? Is this basically and I said,
cothered an exercise because we didn't We just talked about
fees because obviously you guys and fees as well from
the kind of amount of the assets that you've got
under management. I think I get the impression that you
already answered that one to be honest in the last response.
(41:13):
But do you have a response to that.
Speaker 4 (41:16):
Yeah.
Speaker 3 (41:17):
Look, by the way, it's very clear Bloomberg isn't throwing
softballs at me. These are like challenging questions. So are
we trying to gather assets? We could liquidate the funds
like Janis Anderson did to Nelson Peltz. So we're trying
to keep it alive. What is keeping it alive?
Speaker 1 (41:32):
Do?
Speaker 3 (41:32):
What's the positive benefit? I'm going to take that capital
and invest it back into the investment trust sector, which
should have a positive effect on the sector.
Speaker 4 (41:41):
And there's demand for what we do.
Speaker 3 (41:43):
We run a business, and if investors, if investors don't
want it. In the case of the Bailey Gifford KEPC
fund and another fund run by Janis, by the way,
they were stuck. Bailey Gifford kept one hundred percent of
them one hundred percent of the fees. We're going to
give people who want their money back effectively some most
or all of their money back in a way that
(42:04):
should answer the question for itself. So we were holding
ourselves to a much higher standard than these very managers.
And I think that when you have two hundred and
seventy somethingter trust in the UK mostly underperforming. One of
the things that I had a great conversation with the
head of the industry Group AIIC for UK Investment trust
and he said, one of the great things about investment
(42:25):
trust is they can hold less liquid assets and even
if music royalties hypnosis became a problem until it wasn't,
there is real benefit because you couldn't hold that in
an ETF structure. And I said, I agree, and actually
investment trusts are not very liquid and are a perfect
thing to be held in investment trusts, right. We really
think that to have an offering like ours is bringing
(42:48):
new ideas to a one hundred and fifty year old space.
And it's about time that there was an opportunity for
some of your listeners to say, hey, this guy doesn't
it sounds like he clearly from the reaction, he's getting
stuffed and he's already gone five of the managers to
announce things they woudn't announced for the first three years.
So maybe I want to invest alongside of that in
a reasonable way.
Speaker 2 (43:08):
One thing I wanted to ask you, and this is
slightly different to the other question of actually you're you're
a gamer as I understand it, and I know that
some famous fund managers like ol Gross for example, always
talk about poker as an analogy for investing your game
a choice used to make chess. And I was just
wondering what you feel your background there, because you were
(43:29):
like number two in the US at one point, Is
that right?
Speaker 4 (43:31):
Not quite? I was number two for age fifteen sixteen?
Speaker 2 (43:35):
Oh yes, yeah, yes, a child prodigy, a bit like
a rowin chancellor here. But so, how do you think
chess has influenced your investment style? Would you bring from
chess to invest in?
Speaker 3 (43:46):
By the way, Rachel Reeves, I got to meet her
one time because of chess.
Speaker 4 (43:50):
It was not a very.
Speaker 3 (43:51):
Memorable meeting, by the way, and we were in a
group and she came along and we went to Pete Express.
So I have a long history with chess and Rachel Reeves. Actually,
because of some of the changes caused a lot of
discontent in your equity markets and sellers of the of things,
including investment trust, I want to say that the investment.
Trust problems are not problems only of their own making.
(44:14):
Let's leave it at that, since I was there to
stay in good stead with her, look chess, blackjack, poker.
I never really played poker till I was thirty or so.
And an't you Jane, just a brilliant man. He called
me and said, I got you invited to Warren Buffett's
poker tournament. Do us proud? And I said, on't you?
I think you confused me with confused poker with blackjack
(44:34):
or poker with chess. I don't play poker. And he said,
you called me from the airport in Omaha, Nebraska. I
just met Warren Buffett. I said I don't play poker,
and he said, now you do, and he hung up
the phone on me.
Speaker 4 (44:46):
And I ended up through a lot of luck.
Speaker 3 (44:48):
I start this conversation with you talking about luck, I
ended up with a lot of luck. I was in
one case down to one card to come, and I
was three out of four to lose, and I won
a Maserati and I didn't have a driver's licen so
I was that New York kid that didn't drive. So
I had to go get my driver's license. I have
this history with games which has been just fantastic. But
I think, for the purpose of this conversation, closed end
(45:11):
funds and UK investment trusts are very similar to blackcheck
because you know the discount.
Speaker 4 (45:17):
You know what we're talking. You know, no one's disagreeing.
Speaker 3 (45:19):
Should Facebook stock be at five hundred or four hundred?
This is we take the price as it is, and
we still know what the discount or a premium is.
We know what the discount is. And in blackjack, we
know what the count is and we know what the
odds are. And this is the one arbitrage what I
don't want to leave you with. This is the one
arbitrage where I can control my own destiny because a
(45:40):
share is a vote, and if I get enough shares
and I get enough followers, I can actually get the
manager to be replaced, and that manager should not want
to be replaced. We've only done it twice in twelve years.
What we're doing now in the UK we have done
twice in twelve years in the US despite having more
than seventy campaigns. So why are we doing it now
(46:01):
here in the UK. Because the managers did not listen
to us. We came to them. We said you should
do with an aggressive buyback, you should do with a tender.
You need to narrow your discount, And for three years
the discounts were not narrowed. And so in blackjack. In
the end, you get to know if you played down
to the very last card, you would know exactly what
it is here. If we owned fifty one percent of
(46:22):
the shares, we would know exactly what the outcome would be.
Speaker 4 (46:25):
But let it be left to the voters. The managers
get to call them. We don't.
Speaker 3 (46:28):
So I'm here with you in this lovely conversation to
tell the retail investors we are here alongside you. We
have your interest just like you have our interest, which
is a higher price. The manager's interest is to keep
their fees and to excuse their underperformance.
Speaker 2 (46:44):
If you get one message to get to the rest
of the investment trust sector, she's someone open the sentence.
Speaker 3 (46:51):
Look, let me say this. I would bet what are
they saying you? It's dollars to donuts that the other
twenty funds that we owned have had meetings about.
Speaker 4 (47:02):
How to get their share price up, and you did.
I don't know you did, but I do know you did.
Speaker 3 (47:07):
Logically you did and think about this small investor that
we are a positive agent for change and we are
going to invest not just the two billion we have
so far, but we are going to invest more back
into the sector. And what you will see which I'll
give you an anecdote. In the US, there is a
fund the ticker is NHS Nancy Harry Sam. They after
(47:30):
quite a bit of back and forth, they did a tender,
they did listen to us, and after that their shares
traded so much better that they were able to issue
more shares two different times. And so looking out five
years from five years later, their fund is now bigger
because we help them fix their fund after a lot
of back and forth that they otherwise wouldn't have had.
(47:51):
This is about too many sellers, not enough buyers. If
you buy your back your shares, if we buy back
your shares, you will be able to grow the UK
Investment trus space. And so that's my message to the market,
is that I know the seven of you don't think
we come in peace, but for sure there are hundreds
of thousands of small investors that have benefited every time
from our activism. Whereas in normal activism, if you try
(48:13):
to turn jcpenny into Apple Computer. You can actually do
quite a bit of damage closed end fund and investment
trust activism, especially because we're giving liquidity. You can take
that money you want to be in small stocks, you
don't want what we do, take your ninety nine percent
and go buy another one in eighty nine percent, Rinse, repeat.
That's the opportunity for the small investor who doesn't want
(48:33):
SABA capital.
Speaker 4 (48:34):
After this is all over.
Speaker 3 (48:36):
If you don't, okay, fine, take your ninety nine vote
for us, get your ninety nine, go buy the exact
same thing in eighty nine and maybe find an ETF
that has lower fees. So we're really giving investors options
whereas they were stuck and a lot of institutions had
no choice but to sell. And that's a sorry situation.
And even those ones, I hope they support us, they
(48:56):
should be very happy for our involvement.
Speaker 2 (48:58):
Well, you just giving me the head. It's going to
be who boys, Wayinstein fixed the NHS. I think that'll
be very click beity here. Thanks a lot for your team.
The one other thing with ASKI boys is so say
we look back. You went out here three years out.
You'll be judged doing Saba's three year performance from now.
What would count as success.
Speaker 3 (49:20):
First that investors were able to get that exit, and
that if they then look at the ones who stayed in,
that they would find something that I truly believe. I
look at all the businesses that SABA does, because we
do a lot more than investment trusts and closed in
funds going I look across the businesses. None of the
other businesses do I have any sort of control over
(49:41):
the future. Predicting the future is hard, but this business
is something that is far easier. If you buy something
at a fifteen discount, and sixty times in a row,
you were able to get that discount to shrink, rinse, repeat,
you were creating value for your investors. So success to
me three years later would be that what we be
able to do for the last twelve years for our
(50:02):
clients is repeatable. I think it's even more repeatable because
now we carry a bigger stick. We have six billion
invested in the space globally, and that because of that,
managers will do the right thing and we will deliver
super normal games to our investors because discounts will narrow
because of us.
Speaker 4 (50:21):
That's my goal.
Speaker 3 (50:22):
We might fall short, but for the last eight years,
it's been If you look at that et off, it's
been a great ride.
Speaker 2 (50:28):
Okay, thanks very much, boys, really appreciate your time, my pleasure.
Thanks for listening to this week's Medon Talks Money. If
you like a show, rate and review and subscribe whatever
you listen to podcasts and keep sending questions at comments
to Medon Money at bloomberd dot net. You can also
(50:48):
follow me and Menon on Twitter or x as us
now Knowing I'm at Join Underscore, Stepic and Medon is
at meddon sw This episode is hosted by Me Joined
Stepic was juiced by Summersadi and Moses and dam and
special thanks to bo Has Weinstein
Host
Merryn Somerset Webb
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Therapy Gecko
An unlicensed lizard psychologist travels the universe talking to strangers about absolutely nothing. TO CALL THE GECKO: follow me on https://www.twitch.tv/lyleforever to get a notification for when I am taking calls. I am usually live Mondays, Wednesdays, and Fridays but lately a lot of other times too. I am a gecko.