Round one in the battle over the future of seven investment trusts has gone to an existing board after shareholders in Herald IT rejected proposals from New York hedge fund Saba Capital to replace the directors. 

Of those who voted at a general meeting, 65.1% were against Saba’s resolutions, with Saba using its 14.1 million votes to vote in favour, representing roughly 34.75%.

Apart from Saba’s own votes, there was support from those holding just 0.15% of the votes.

Saba, led by Boaz Weinstein, has built substantial stakes in the seven trusts and is attempting to unseat their boards on the grounds of under performance.

Andrew Joy, chairman of the independent board, said: “Today non-Saba shareholders have almost unanimously rejected Saba’s self-interested proposals.”

With almost all votes by non-Saba shareholders against the resolutions, he said it “provides a clear, complete and incontrovertible rebuttal of Saba’s attempt to take control of your company and change its strategy against the wishes and interests of its non-Saba shareholders”.

He argued that Saba’s proposals were rejected as their intended outcome was for Saba to end up managing Herald.

“The reason shareholders invested, and continue to invest, in Herald is for long-term capital appreciation through investing in smaller technology companies, and they do not wish to be deprived of the opportunity to enjoy more of the same. They did not invest in Herald to become part of a short-term trading strategy.”

Mr Joy said he regretted that the vote has cost shareholders money, which cannot be reclaimed from Saba but added that “we look forward to engaging with our shareholders, including Saba, now that our shareholders have voted resoundingly in favour of the noard and by extension, the mandate and the manager.” 

Jonathan Simpson-Dent, chairman of Edinburgh Worldwide Investment Trust, which is also being targeted, said: “Congratulations to the Herald team for seeing off the attempted raid on their trust by Saba Capital.

“Shareholders have made it overwhelmingly clear that they want a long-term investment vehicle, not the short-term financial arbitrage offered by Saba.

“But this is just the first battle in a war against seven trusts. Shareholders cannot be complacent. Voting is open for Edinburgh Worldwide shareholders ahead of our shareholder meetings on February 14. The lesson from today is that if you want to stop Saba, and protect your trust, you have to vote.”

On Monday, Mr Simpson-Dent warned that the investment trust sector was facing an “existential threat”.

The trusts being targeted are: US Growth, Edinburgh Worldwide and Keystone Positive Change – all managed by Baillie Gifford – as well as European Smaller Companies, Herald, Henderson Opportunities, and CQS Natural Resources Growth & Income. 

Saba Capital responded to today’s vote by saying: “We appreciate the thoughtful engagement from fellow HRI shareholders in recent weeks, which only reinforces the dire state of the UK investment trust industry and need for Saba’s presence in the market.

“Over a brief period, our campaign has already enhanced value for shareholders and incited positive change at HRI – and elsewhere in the UK market – as evidenced by discounts to net asset value narrowing and numerous trusts announcing shareholder-friendly actions.

While these developments are encouraging, more change is required. As told in countless UK financial press articles over the past three years, the industry’s failure to protect shareholders from losses due to poor performance and widening discounts cannot remain unaddressed.

“At HRI, we will continue to pursue the changes that we believe are necessary to improve the Trust after three years of poor returns and two decades of abysmal discount management by Katie Potts. 

“Saba remains committed to putting shareholders’ interests first, delivering returns for U.K. trust investors and ultimately rehabilitating this broken sector. We urge shareholders of the six other trusts at which we have requisitioned General Meetings to support Saba’s resolutions in order to set these trusts on the path to meaningful value creation.”

Dates of other general meetings

USGT: 3 February at Noon

KPC: 3 February at Noon

HOT: 4 February at 10am

CYN: 4 February at 11am

ESCT: 5 February at 12:30pm

EWI: 14 February at 11.45am