The financial watchdog has been accused of missing the point after suggesting that the investment trust sector is being “self-interested “and “short-sighted” by raising concerns about activist investors.

Jonathan Simpson-Dent, chair of Edinburgh Worldwide Investment Trust, has issued an open letter on the Financial Conduct Authority’s (FCA) position, stating that “retail investors deserve better safeguards from activist campaigns”.

His comments follow a sustained campaign by the New York based hedge fund Saba Capital Management to oust the EWIT board and install its own directors.

Mr Simpson-Dent says that under the current legal and regulatory framework a 30% stake can be sufficient to force out and replace an entire board because that change only requires approval from more than 50% of shareholders who actually vote.

“Investor platforms often do not deem such a move to be a corporate action and therefore do not notify their customers of such a vote.

“Once in situ, the new board has the power to appoint a new manager with a different goal and approach. The new manager could be the firm that has just nominated the new directors through its minority holding. 

“This self-fulfilling circularity is often in conflict with the objectives of the majority of shareholders. This is why Impax and Edinburgh Worldwide are proposing tender offers to provide shareholders with the opportunity to exit these trusts.”

Mr Simpson-Dent says “no one is seeking protection from legitimate shareholder scrutiny” and accepts that the right to requisition meetings, propose resolutions and vote on board composition is fundamental to the UK’s corporate governance framework “and should remain so”.

However, he adds: “The real question is whether those rights are operating fairly for all investors, particularly the tens of thousands of retail shareholders who dominate ownership of the investment trust sector.

“Retail investors deserve a system that works for them, as well as for the most powerful shareholders. I therefore welcome the FCA’s consultation later this year, though for the shareholders of Edinburgh Worldwide, any changes will come too late.”

Q&A Session

UPDATE 24 MARCH: Mr Simpson-Dent will host a live Q&A session on the tender offer on Friday for shareholders and other interested parties.

Questions may be submitted in advance to enquiries@bailliegifford.com up to 5pm (GMT) on 26 March, or during the live presentation.

The board reiterates the importance of shareholders voting in favour of the Tender Offer in order to provide a clear and definitive choice: to realise value ahead of a potential change of control, or to remain invested and assess how the company may evolve under Saba’s influence.

In addition to voting on the Tender Offer, shareholders will need to decide whether to tender their shares. The board invited Saba’s proposed board nominees – Gabriel Gliksberg, Jassen Trenkow and Michael Joseph – to participate in the webinar. However, they have not responded to the invitation and are not expected to attend.

Mr Simpson-Dent, Chair of EWIT, said: “The board believes that the tender offer is in the best interests of shareholders as a whole, providing a clear choice in the context of a likely change of control.

“For shareholders to have that choice, it is vital that they vote, and that turnout is at least as strong as in the previous campaign. I look forward to answering any questions that shareholders may have on Friday.”