Bosses blast watchdog dithering over US raider Saba Capital

The City watchdog is under fire for failing to protect small shareholders in investment trusts besieged by carpetbaggers.

Leading industry figures said the Financial Conduct Authority (FCA) is naive, needs a ‘reality check’ and has a lack of understanding of what is at stake.

Glen Suarez, who chairs Impax Environmental Markets trust, and Jonathan Simpson-Dent, who chairs the Edinburgh Worldwide fund, called on the regulator to stop raiders from riding roughshod over small investors.

Both trusts are being targeted by US hedge-fund raider Boaz Weinstein of Saba Capital, who is exploiting loopholes in the regulation to make repeated attempts to take control of trusts, against the wishes of most shareholders.

Scrutiny: The Financial Conduct Authority is under fire for failing to protect small shareholders in investment trusts besieged by carpetbaggers

‘It is absolutely fair to say the FCA is not taking enough regard of the plight of private investors. It needs to step up,’ Suarez said.

The FCA has launched a review into the rules after Saba took stakes in a string of investment trusts then tried to install its own directors on to their boards.

Despite being rejected by other investors, Weinstein has persisted, in a war of attrition. ‘He only needs to win once whereas the board needs to win every time,’ said Suarez. Simpson-Dent said the regulator was doing too little, too late, adding: ‘We will see blood on the floor before the FCA takes action.’

On the attack: Boaz Weinstein of Saba

Simon Walls, the FCA’s head of markets appeared to pre-empt the review’s conclusions in a blog, suggesting the watchdog would be reluctant to intervene.

He argued trusts could take legal action or amend their articles of association to defend themselves against raiders. The trusts say this would be prohibitively costly and impractical.

‘I get the impression he doesn’t understand the issue,’ Suarez told The Mail on Sunday.

Simpson-Dent said he was ‘flabbergasted’ by the remarks from Walls, referring to the ‘naivety of the FCA’. He said: ‘They are telling us ‘just change your articles’. But we can only change them with a 75 per cent shareholder vote. When you’ve got an aggressor who owns 30 per cent you’ll never get them changed.’ 

Edinburgh Worldwide and Impax have embarked on ‘exit tender offers’, which aim to give investors who do not want to risk being marooned in a fund controlled by Saba the chance to get out at close to net asset value.

Suarez urged investors to vote on the exit tender offer. The formal close is 11am on April 14 but for some platforms it could close as early as April 10, so shareholders should vote as soon as they can. The closing date for the Edinburgh Worldwide exit tender offer is 2pm on April 8.

Richard Stone, head of the Association of Investment Companies, said: ‘It’s deeply unjust that we could see the loss of two investment trusts whose shareholders have repeatedly backed the board. After an exodus of listings to overseas, the UK can ill afford to lose more companies from the London market.’

The FCA said it hoped record voting turnouts continued, and that boards have legal powers if they consider results not in the best interest of shareholders adding: ‘We’ve announced a review to ensure minority shareholders have the right protections.’