Tom Slater, manager of one the UK’s biggest investment trusts, has defended the record of three fellow Baillie Gifford managed trusts which are being targeted by a New York activist investor.

Shareholders in seven trusts are being asked to vote on resolutions lodged by Boaz Weinstein of Saba Capital who is attempting to unseat their boards after accusing them of underperforming.

Responding to questions from Daily Business, Mr Slater told a forum of investment professionals in Edinburgh today that he was a shareholder in three of the Baillie Gifford trusts being targeted and he was satisfied with the returns he had received.

“I will be voting against them [the resolutions],” he said, singling out the performance of the US Growth Trust. “I have trebled my money. I am a happy shareholder and it is doing what it set out to do.

“On Edinburgh Worldwide I have worked with Douglas Brodie the manager for the past 23 years and I think he is an exceptional investor with a great deal of insight. It has had a tough time as all small cap strategies have had in the past few years, but I think it will generate strong returns in the future.”

Afterwards, he added that the outcome was a “big unknown” but it was for the shareholders to express their view. “This is something the sector has not had to contend with for some time,” he said.

His comments came amid expectations that Mr Weinstein may succeed in persuading some institutions to swing some of the votes in his favour.

He also targeting Herald Investment Trust, European Smaller Companies Trust, Henderson Opportunities Trust, Keystone Positive Change Investment Trust and CQS Natural Resources Growth & Income. 

One industry source said: “He already has upwards of 20% in these trusts and I would not be surprised to see him winning enough support to take control of two or three.”

He has no holding in Scottish Mortgage which is therefore unaffected by the current action, but he has hinted at taking a similar approach to more trusts and merging them into larger entities.

Saba was founded by Mr Weinstein in 2009 and has $6.6 billion in investment trusts and closed-end funds.

Mr Weinstein yesterday used an 80-minute webinar to tell investors he aimed “to rehabilitate a broken industry that has not been able to grow”.

He repeated his accusation that the fund managers, particularly at at Baillie Gifford and Janus Henderson, were underperforming.

On Baillie Gifford, he said it was responsible for “the most abysmal failures in the … investment trust space”.

He added: “My prediction is in the coming three months, many of the trusts that Saba holds will announce shareholder friendly actions that will make you additional hundreds of millions of pounds that you would not otherwise have made because they want to head us off at the pass.”

Hinting that he may target more trusts, he added: “The entire UK closed-end fund space in general will see smaller discounts, especially if we win and we have this fire power to buy up UK trusts.”

Mr Weinstein later issued an update showing how Saba had created value for shareholders at underperforming investment funds, such Artemis, Tortoise, Eaton Vance and Salient. Regarding his latest targets, he said: “The Trusts’ average discounts to NAV [net asset value] over the past three years are significant and reversible.”

He added that the US and KPB boards, managed by Baillie Gifford, appear to have ramped up their buybacks in response to fears that their largest shareholder will seek to replace them, contributing to the recent and temporary narrowing of the discount.

Mr Weinstein claimed that “Saba’s presence appears to be the key reason why US and EWI] now trade at premiums to their NAV. Baillie Gifford’s SMT and MNTN also have similar positions in SpaceX, yet they trade at double-digit discounts.”

In a separate statement, Laith Khalaf, head of investment analysis, AJ Bell, said: ‘If Saba wins some of the forthcoming votes, the UK investment trust industry might want to buckle up for more of the same.

“Saba wants to overhaul the investment trusts, with the potential to merge some or all of them, and use the assets to buy more UK investment trusts trading at discounts.

“It would then rinse and repeat its current campaign to try to force convergence between the share price and the value of the underlying portfolio.

“Whatever the results of the upcoming shareholder votes it will be interesting to see if the arrival of Saba prompts investment trust boards to take more measures to address large discounts.”

Global outlook

Those attending today’s forum heard presentations on the global investment climate from Mr Slater and his deputy Lawrence Burns.

Mr Slater said companies had come through a series of challenges such as Covid and geo-political tensions with a focus on controlling costs, a big improvement in margins and improved cash flow.

“Companies have benefited from a change in the structure of the economy rather than from growth,” he said.

He said that if President Trump sticks to his tariff pledges it will be inflationary and the economy will have a lighter regulatory environment. Artificial intelligence will be “transformational” for the global economy but the trust had pulled back on chip maker Nvidia as AI becomes ‘commoditised’.

Scottish Mortrgage has reduced its stake in Elon Musk’s car maker Tesla but he said it Mr Slater could reinvest if an attractive opportunity arose.

He said: “The challenge we face as Tesla shareholders is the value of the company has increased by about half-a-trillion dollars in the last few months.”

He said China, despite current low growth, was building across the whole spectrum of entrepreneurialism as well as research and development.

He warned: “The market is missing the big picture on China. It is making massive progress on electric vehicles, drones, robotics, semi-conductors and renewables.

“Politicians can create obstacles to China in the short term but if we do not match China we will be uncompetitive.”

He said Scottish Mortgage was investing in companies such as robotics firm Horizon, the car manufacturer BYD and ecommerce site Pinduoduo, which are already growing fast.

“Where we can find businesses of that calibre we will invest in them,” he said. “I am very excited about our prospects in the US and China.”

Mr Burns responded to questions about the absence of investments in India by saying there had been a number of issues, including valuations and assembling management teams. He said opportunities in other countries had provided a “more attractive” risk-reward proposition.

“But if we have not found something [in India] in the next two to three years it will be a disappointment,” he said.

Europe was home to many of the world’s luxury brands, a €360 billion industry set to grow to €580bn buy 2030. The company is a long-standing investor in Ferrari and has recently added Hermes.