A U.S. Hedge-Fund Star Wants to Rescue British Investors. They Should Thank Him and Leave.

In the world of finance, there are those who create value and those who destroy it. Boaz Weinstein, the founder of U.S.-based hedge fund Saba Capital, is attempting to position himself as a 'white knight' for British investors, targeting seven UK investment trusts with a combined market value of around £4 billion. However, the question remains: should British investors thank him and leave, or is there more to his strategy than meets the eye?

Weinstein's plan is to replace the directors of the seven trusts with his own nominees, arguing that the current boards have failed shareholders by making poor choices and not holding management accountable for the trusts' poor performance. He believes that by fully reconstituting the trusts' boards, he can unlock greater value for shareholders and address long-term structural issues that have hamstrung their return potential.

At first glance, Weinstein's plan seems like a breath of fresh air in an industry that has been criticized for its lack of accountability and poor performance. The seven trusts he is targeting have indeed suffered performance issues in recent years and traded at wide discounts to net assets until Saba's shareholding was revealed. However, a closer examination of his strategy raises several concerns.

Firstly, Weinstein's preferred approach is to engage privately with boards, but he feels that the boards would not engage with him and make changes. This raises the question of why he believes that replacing the directors with his own nominees would lead to better outcomes. If the current boards are unwilling to engage with him, it is possible that they have valid reasons for their decisions, and replacing them may not necessarily lead to improved performance.

Secondly, Weinstein's plan to combine the trusts' assets and sell holdings in highly-valued US stocks to buy shares in UK firms and other British trusts raises concerns about the potential misalignment of shareholder expectations. Some fund managers, like Baillie Gifford, have expressed concerns that Saba's strategy lacks detail and could lead to investors holding a stake in a portfolio very different from the one they first signed up for. This could result in dissatisfaction among shareholders and potential legal challenges.

Lastly, there is the issue of illiquidity. Matthew Read from Quoted Data has raised concerns about the liquidity of some of the trusts' underlying holdings, particularly in the case of the Herald investment trust. Saba's plan to sell off illiquid positions could take years and may move the market against them, potentially leading to losses for shareholders.

In conclusion, while Boaz Weinstein's intentions may be noble, his strategy to rescue British investors raises several concerns. The potential misalignment of shareholder expectations, the lack of detail in his plan, and the illiquidity of some of the trusts' underlying holdings all point to a need for caution. British investors should thank Weinstein for his interest in their investments but should also be wary of his plans and ensure that their interests are protected. It is essential for shareholders to carefully consider these factors and engage with the proposed changes to ensure their interests are protected.