RUTH SUNDERLAND: Trusts should not give up to cynical Saba

The attempt by the activist investor Boaz Weinstein to take control of several UK investment trusts is a battle for the soul of the London stock market.

Investment trusts are a distinctive feature of the City, with £260billion of assets and 150 years of history.

They have given small private shareholders the chance to invest in exciting ventures from US railroads to space exploration – and, for those who prefer a sedate approach, there are more boring but reliable funds that churn out the dividends.

Weinstein, through his vehicle Saba Capital, has aimed deftly at weak flanks. Some, though not all, of his targets have performed poorly under complacent boards, with shares trading at hefty discounts to net asset value.

The arrival of Saba raises a fundamental question: Are investment trusts worth defending? Is a century-and-a-half of heritage a virtue? Or, in an age of meme-stocks, crypto and fin-fluencers, are trusts heading for oblivion with or without Weinstein?

Edinburgh Worldwide trust is in the eye of this storm. It is now facing a third vote instigated by Saba, which wants to seize the reins and turn it into a predator fund in its own image.

On the attack: Boaz Weinstein, through his vehicle Saba Capital, has aimed deftly at weak flanks

Weinstein’s strategy is clever and, to my eyes, cynical. That is not a criticism of activist investors per se.

They can instigate positive change at companies, particularly if they win the support of other shareholders.

But Saba’s modus operandi is to flout the wishes of its fellow investors, including small savers who have so far voted against Weinstein in force. His approach is to try to take control of trusts using loopholes in the rules and betting on investor inertia, a method most likely to work if there is weak scrutiny by regulators and the media.

The strategy has not created value but has been costly and destructive. Another trust, Impax Environmental, has been pushed into effectively dismantling itself.

A ray of light in this is that small investors have so far turned out to vote in force. They have had little support from the regulator or the Government. Simon Walls, a senior figure at the Financial Conduct Authority (FCA), is of the mind that Saba’s activities are part of the normal rough and tumble of the City.

Not quite: Trusts are a distinctive case in that they are collective savings vehicles catering to small investors as well as the big institutions.

The FCA is looking at the listing rules, which may result in reform, though too late for Saba’s existing targets. The Department for Business and Trade, which is responsible for the rules on voting, has been notable for its silence.

Both Labour and the Tories are keen on boosting the City in order to channel capital to projects the country desperately needs to grow and prosper, including infrastructure and advanced manufacturing. Persuading small savers to buy shares instead of sticking their cash in a deposit account is a key part of this project and investment trusts would be a great way to do that.

The FCA and the Department for Business have been on the sidelines as Weinstein wreaks havoc.

They should be straining every sinew to stop the Square Mile turning into an even bigger magnet for chancers, carpetbaggers and assorted market pests.

Investors in Edinburgh Worldwide should send Boaz, the watchdog and the Labour Government a message by casting their vote. The interests of small shareholders should not be surrendered to Saba.