The New Era of Activism: Lessons from Saba Capital's UK Trust Campaign

The failed takeover attempts of Saba Capital against seven UK investment trusts mark a pivotal moment in corporate governance. After seven consecutive shareholder rejections by mid-2025, Saba's aggressive playbook—reliant on board replacements and short-term liquidity fixes—was decisively repelled. This defeat has reshaped the landscape of investor activism, signaling a shift toward nuanced strategies that balance shareholder interests with long-term value creation. For investors, the fallout presents both risks and opportunities in a sector now primed for reform.

Why Saba Failed, and What It Means for Activism

Saba's campaign targeted trusts trading at steep discounts to net asset value (NAV), arguing that board replacements would unlock value. However, shareholders overwhelmingly rejected its proposals. Take The European Smaller Companies Trust (ESCT), where 62.1% of votes opposed Saba's board takeover bid, with 99.5% of non-Saba shareholders rejecting it. Similar outcomes followed for Henderson Opportunities (HOT) and CQS Natural Resources Growth & Income (CYN), where opposition exceeded 59% in all cases.

The key flaw in Saba's approach: credibility. Despite holding stakes of up to 29.9%, its own track record was underwhelming. As Investec noted, Saba's flagship fund underperformed its benchmark by 67 percentage points since 2017, and two of its U.S. funds traded at discounts worse than the UK targets it criticized. Shareholders saw through the opportunism, prioritizing proven governance over speculative changes.

This data reveals how discounts began narrowing post-Saba's defeat, as trusts implemented reforms like fee adjustments and liquidity schemes, validating shareholder confidence in existing boards.

Strategic Shifts in Corporate Governance

The Saba saga has catalyzed proactive measures among UK investment trusts to preempt activism:
1. Fee Reforms: Trusts like Foresight Solar Fund and Greencoat Renewables switched from NAV-based fees to a blended NAV/market-value model, reducing costs and narrowing discounts.
2. Liquidity Solutions: Henderson Opportunities offered shareholders a choice between a tax-efficient rollover or cash at NAV, while Edinburgh Worldwide Trust announced a £130 million capital return.
3. Shareholder Education: The AIC's “My Share, My Vote” campaign aims to empower retail investors, ensuring informed participation in governance decisions.

These changes reflect a sector-wide realization: defending against activism requires pre-emptive value delivery. Trusts that align fees, liquidity, and transparency with investor needs are now better insulated against hostile campaigns.

The New Playbook for Activists

Saba's retreat has not stifled activism—rather, it has refined it. Competitors like Verition Fund Management (led by ex-Saba manager Pierre Weinstein) are adopting subtler tactics:
- Derivative Arbitrage: Using derivatives and nominee accounts to avoid triggering shareholder votes, as seen in stakes in ESCT and CYN.
- Collaborative Negotiations: Saba itself pivoted to tender offers, enabling exits at NAV without board changes—a model now emulated across the sector.

This shift highlights the future of activism: quiet, data-driven engagement over public confrontation. For example, Utilico Emerging Markets (UEM) and Worldwide Healthcare (WWH)—new Saba targets—face strategies focused on narrowing discounts through dialogue rather than votes.

Investment Implications: Where to Look Now

The post-Saba era offers compelling opportunities in UK investment trusts:
1. Discount-Closed Trusts: Trusts like CQS Natural Resources and HOT, which have reduced discounts through reforms, now offer stable NAV growth without activist volatility.
2. Structural Reforms: Trusts implementing blended fees or liquidity schemes (e.g., Foresight Solar) are poised for sustained outperformance.
3. Defensive Plays: Trusts with robust governance frameworks, such as Baillie Gifford US Growth, are less vulnerable to activism and present low-risk, high-conviction buys.

This comparison underscores the superiority of long-term strategies over Saba's short-termism, with Baillie Gifford outperforming by 68% since 趁2020.

Final Call to Action

The Saba saga is a masterclass in activist investing's evolution. For investors:
- Buy trusts with closed discounts and reformed governance (e.g., ESCT, CYN post-tender).
- Avoid trusts reliant on activist tactics without operational substance.
- Monitor new entrants like Verition, which may unlock value through quieter, data-driven strategies.

The era of hostile takeovers is waning. The future belongs to investors who back companies that proactively address governance flaws—and activists who earn trust rather than demanding it.

The post-2025 landscape favors patience and prudence. Act now to capitalize on the lessons of Saba's defeat.