With trade fluctuating, activist investors have turned their activity to capitilise on this. We explore how activists are operating; we detail the impact of such activity and consider how to address this going forwards. With experts in this field, RD:IR can support.
How activists became prevalent?
Trusts trading at wide discounts to net asset value (NAV) have attracted the attention of activist investors who see an opportunity to capitalise on potential negative shareholder sentiment and push for changes that they deem will narrow the discount. Changes proposed can vary from replacing trust board members and managers to requesting tender offers at a pre-agreed higher price. In more extreme cases, activists can push for the discontinuation of the trust where its assets will be sold and, once all liabilities are paid for, the profits are distributed amongst investors. The most recent case of activist activity to shake up the investment trust sector has been Saba Capital Management. The US-based hedge fund built significant equity positions in seven investment trusts managed by Baillie Gifford, Herald Investment Management, Janus Henderson Investors and Manulife | CQS Investment Management, in the final weeks of 2024, looking to replace the board members and appoint themselves as the managers of these trusts’ investments.
The impact of activist activity, and the industry activity to address this
Before discussing the outcome of Saba’s activity, it is important to first understand the investment trust market pre and during the run-up to this campaign. AIC data shows that the value of the UK closed-end funds (CEFs) sector (excluding 3i) increased from £165.77bn as of the end of 2019 to £225.15bn as of the end of 2021. EQ RD:IR data shows that during the same period there was a significant rise in retail investors via D2C platforms, notably Hargreaves Lansdown’s Vantage platform and Interactive Investor seeing the largest increases of 1.24% and 0.70% in retail investors purchasing investment trust shares via them respectively over the period. Institutional investors also modestly increased their holdings in the sector between 2019 (28.71%) and 2021 (28.95%). These increases, especially in the case of D2C platforms arose on the backdrop of wealth managers & private banks, which is the largest segment in the sector, reducing their stake in the sector from 31.52% in 2019 to 30.60% in 2021 as displayed in the graph below (Figure 1).
The motives for this trend of wealth managers reducing their exposure to investment trusts are largely attributed to regulatory reasons such as the cost disclosure rules surrounding the investment trust sector which makes portfolios containing investment companies look artificially expensive, and to an increase in allocation of funds to fixed-income assets as a result of higher bond yields. Another important reason for this trend is related to the market concentration as there are a number of investment companies which are not of scale, meaning that for large wealth managers to deploy £100m in the investment trust universe would mean that they would own a significant stake in certain investment companies, which is not desirable.
From the end of 2022 to 2023 the trend continued with a further rise of 1.76% in retail investors investing in trusts via D2C platforms and wealth managers reducing their exposure by another 0.75%. Institutional investors’ positions also waned in the sector to 27.44% in 2023 compared to the 28.95% previously held in 2021. This increase in less experienced investors comprising the shareholder base across the board combined with the sell off by experienced investors has led to widening discounts among many trusts and opened a window of opportunity for activist investors to enter the shareholder base and capitalise on the double-digit discounts. EQ RD:IR data also points to the sharp increase in trading activity in collateral and principal accounts at the end of 2023 as shown in Figure 2, which is a strong indication of activist activity through CfD and other derivative positions.
This pronounced increase in trading activity in collateral and principal accounts at the end of 2023 coincided with Saba Capital building significant stakes in several investment trusts at the time, including 27.18% in Crystal Amber Fund Limited (CRS), 11% in Henderson Opportunities Trust plc (HOT), and 9.99% in European Opportunities Trust plc (EOT). In the case of CRS, Saba’s activist campaign was successful in the vote of the wind-down of the trust. These were early signs of what was to come if decisive actions are not taken to narrow discounts as well as an important reminder to investment companies on the importance of the regular tracking of its shareholder base in order to ensure effective IR and maintain solid shareholder engagement on company matters. EQ RD:IR were appropriately engaged with its trust clients, ensuring awareness of these early Saba movements through the provision of tracking services such as frequent share register analysis and transaction reports as well as retail investors engagement services. These services proved to be of even greater importance to its clients in the year to come.
Planning for the future
Wealth managers and institutional investors continued disposing of investment trust shares while retail investors continued their climb on the shareholder base of trusts as managers could not seem to find a solution to the widening discount problem facing the sector throughout 2024. This environment emboldened Saba Capital to take their activism onto the seven trusts listed below (Table 1) in December of that same year.
| Trust | Ticker | Saba's Aggregate Interest | 3-Year Average Discount to NAV |
| Baillie Gifford US Growth Trust plc | USA | 25.2% | -13.8% |
| CQS Natural Resources Growth & Income plc | CYN | 25.1% | -14.0% |
| Edinburgh Worldwide Investment Trust plc | EWI | 21.1% | -12.9% |
| European Smaller Companies Trust plc | ESCT | 29.1% | -13.5% |
| Henderson Opportunities Trust plc | HOT | 23.4% | -13.4% |
| Herald Investment Trust plc | HRI | 18.6% | -14.7% |
| Keystone Positive Change Investment Trust plc | KPC | 29.2% | -12.0% |
Table 1 Source: Saba Capital UK Trusts Shareholder Letter 18th December 2024
As the table above shows, the US-based activist hedge fund held considerable interest in the seven trusts, which enabled them to requisition General Meetings at the end of January/ start of February 2025. Saba Capital envisaged replacing members of the boards of directors of the trusts with their own selection of board members to have themselves appointed as the managers.
It is believed that Saba was hopeful on low voter turnout at these Requisitioned General Meetings (RGMs) given the significant retail investor base comprising the share register of the seven trusts. Shares held via platforms often equate to a disconnect between companies and shareholders as very few platforms offered easy access to voting in general meetings until recently. However, a wave of campaigns ignited by the targeted trusts in conjunction with the AIC and other stakeholders appealed to retail holders to vote at the RGMs via the platforms, with platforms making it easier for their users participate in the voting. EQ RD:IR worked with its trust clients being targeted in this Saba campaign by tracking Saba’s confirmed and potential holdings on the registers and assisting trusts in engaging with retail investors via Equiniti Shareview and retail reach out projects. The robust response by the trusts to the Saba threats culminated in all seven trusts resoundingly defeating Saba’s proposals at the RGMs with voter turnout being higher than normally seen at AGMs for many of these trusts. For example, at the European Smaller Companies Trust plc (ESCT) RGM, the total votes cast per resolution stood at approximately 76.86% of the company’s issued share capital, a considerable increase from the company’s AGM in 2023 where the total votes cast per resolution averaged at around 43%.
Although Saba was unsuccessful in its efforts at the start of 2025, the hedge fund is not showing signs of stopping its activism in the sector. Since then, they have targeted four trusts with the aim of converting them into open-ended funds. After observing Saba’s shake up of the UK investment trust market, managers including BlackRock have hurried to reach agreements with the activist hedge fund to avoid disruption at their respective trusts. Some trusts have opted to implement tender offers to essentially pay Saba to exit their register.
EQ’s role as support
In conclusion, both the changing shareholder base of investment companies and Saba’s campaigns, have put the vulnerabilities of the investment trust market in the spotlight. These could lead to the rise of more activist firms initiating campaigns against the boards of trusts soon. A recent example is the birth of Achilles Investment Company, an activist investment trust launched in 2025 to exploit the alternative sector discounts, with its first target being Urban Logistics REIT (SHED). While trust boards are scrambling to come up with definitive solutions to the activism problem, with many resorting to mergers in order to gain scale and remain attractive to experienced investors such as wealth managers, it is of great importance that they maintain effective IR. This ensures that trusts understand and engage with their shareholder base, hindering activists from taking advantage of potential disconnects between company and investors. At EQ RD:IR, data is provided to its investment trust clients to support effective IR with its best-in-class investment trust shareholder data covering approximately 70% of AIC members. Continued monitoring of the trusts’ share register is conducted at EQ RD:IR, providing valuable up-to-date insights on trends, such as the rise of activists, across subsectors and the investment trust market.