Concerns have been raised with the financial regulator that the battle raging over the future of the investment trust sector could harm retail investors’ interests.

Seven investment trusts, including three managed by Edinburgh-based Baillie Gifford, have been targeted by New York based Boaz Weinstein of Saba Capital who wants to replace their boards.

The Association of Investment Companies has written to the Financial Conduct Authority regarding the protection of retail shareholders’ interests. It has called for platforms to “actively contact” clients to encourage voting.

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. 

Richard Stone, chief executive of the AIC, said: “Following Saba’s action, we are concerned that the current regulations do not protect the interests of retail shareholders.

“Saba is targeting investment trusts with a high percentage of retail investors, so it’s vital they have their say on the activist’s radical proposals to replace the board, change the investment strategy and become the investment manager.

“We are relying on platforms’ support to get this information out to their customers and encourage them to vote. Thankfully they have been broadly supportive of our call for action.”

In a presentation released by Saba, the firm outlined that if elected, it would assess options for liquidity events and appoint at least one additional independent director to the boards.

In a longer-term view, Saba said it would consider ending the trusts’ current management agreements, research new managers which could include Saba and apply a similar investment strategy to the one used for Saba’s Close-End Funds ETF.

The AIC also called on the FCA “to urgently explain its views on the independence of directors under the Saba proposals”, and questioned how conflicts of interest would be managed if Saba won the vote and was proposed as manager.

Saba said apart from Saba founder Boaz Weinstein and Saba principal executive officer Paul Kazarian, its candidates for directors are independent.

See also:

Slater defends Baillie Gifford record