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The UK’s Financial Conduct Authority has been involved in a increasingly confrontational activist campaign targeting seven investment trusts as concerns grow over the interests of retail investors.
The FCA has contacted the largest retail investment sites over their communications with clients of seven investment funds targeted by US activist hedge fund Saba Capital, according to people familiar with the matter. The regulator wants to make sure shareholders are aware of upcoming votes on trust board members.
FCA officials questioned Hargreaves Lansdown, Interactive Investor and AJ Bell about how they alert clients who hold shares in investment trusts on their platforms, according to people familiar with the communications.
Saba, which is led by activist investor Boaz Weinsteinhas called on shareholders to vote to oust trust boards, saying the boards have failed to hold their investment managers to account due to poor performance.
The campaign could lead to one of the biggest shake-ups in Britain’s 150-year-old investment funds industry, which manages £266bn of assets.
Saba has proposed its own candidates to the board of directors and aims to ultimately take over investment management of the trusts, which are currently managed by Baillie Gifford, Janus Henderson, Herald Investment Management and Manulife.
However, the investment fund industry has raised concerns that retail investors may not turn out to vote, paving the way for Saba to take over. Saba holds stakes ranging from 19 to 29 per cent in each of the trusts, worth a total of £1.5 billion. Saba needs more than 50 percent of the votes in favor in each trust to win.
The FCA is closely monitoring the situation and remains in close contact with investment platforms which manage investment fund investor communications, according to a person briefed on the matter.
However, the rules governing votes to remove and appoint directors of investment trusts are set by the Companies Act, rather than FCA regulations, so the watchdog has decided that for “At the moment these were internal matters of the trusts, their boards and investors, the person added.
The Association of Investment Companies, the industry’s trade body, has written to the FCA to raise concerns about protecting shareholder interests.
“With so much at stake, the regulator cannot just rely on people to do the right thing,” said Richard Stone, chief executive of the AIC. “When significant changes are proposed to an investment trust, platforms should actively contact their customers to encourage voting.”
Stone called on the FCA to review how board independence is determined under its listing rules. He said Saba’s campaign to take control of the boards of the two investment funds and also become their asset manager had raised potential conflicts of interest.
The seven trusts Saba is targeting are Baillie Gifford US Growth; Edinburgh Global Investment; Key positive change; European small businesses; Henderson Opportunities; Investment Herald; and CQS Growth and Income from Natural Resources.
Hargreaves Lansdown and AJ Bell said they had written to trust shareholders to encourage them to vote. Interactive Investor said it had also taken steps to allow customers to vote. The FCA declined to comment.
