Saba Capital Boosts UK Shareholder Democracy via Activism

The US-based hedge fund Saba Capital has once more encountered defeat in its recent bid to seize control of an investment trust for its strategic objectives. In the previous week, investors in Edinburgh Worldwide rejected Saba’s initiative to oust all six independent non-executive directors and install three candidates nominated by Saba. Among the total votes submitted, 53% opposed the resolutions—a statistic that somewhat favors Saba since it incorporates the fund’s own substantial 30.7% holding. Remarkably, only 7% of shares excluding Saba’s stake supported the hedge fund’s strategy.

Saba Capital’s Role in Enhancing Shareholder Activism

Regardless of personal opinions regarding Saba Capital and the bold pursuits of its founder, Boaz Weinstein, one undeniable positive emerges from this ongoing narrative. There is clear evidence that this entire episode has significantly advanced shareholder democracy within the United Kingdom.

Hedge fund managers on a global scale prioritize profit maximization above everything else. Operating in an intensely competitive industry, they must relentlessly pursue superior returns to validate their substantial fee structures. Collectively, hedge funds oversee approximately $5 trillion in assets worldwide, distributed among a select group of major players and countless smaller entities, all vying aggressively for investor capital. To retain and attract funds, these managers must consistently deliver strong performance; otherwise, clients will withdraw their investments and seek alternatives elsewhere.

This fiercely competitive environment frequently propels hedge fund managers toward activist strategies. When an investment underperforms, the most effective path to rapid improvement often involves disrupting the status quo by advocating for leadership changes that align with value-creation goals.

Should these interventions successfully release trapped value, every shareholder stands to gain. Moreover, those who disagree with the proposed shifts are under no obligation to remain invested. The framework inherently empowers both institutional and retail shareholders to voice their positions through voting—even though larger stakeholders naturally wield greater influence due to their holdings.

Nevertheless, UK shareholder democracy has encountered serious challenges over the last 20 years. The transition from direct individual ownership to consolidated holdings via platforms and nominees has created confusion around shareholder entitlements and expectations.

While large platforms bear some responsibility, individual investors and corporate boards have also displayed notable complacency during this evolution. Over the past couple of years, discussions with investors, analysts, brokers, and engaged board members have uncovered disturbing insights into the indifference some boards and executives have shown toward their shareholder base. The emergence of Saba has delivered a much-needed wake-up call to these entities.

After Saba launched its campaign against seven investment trusts—including Herald—at the start of the prior year, the Association of Investment Companies, the leading trade body for investment trusts, advocated for legal reforms. These reforms would mandate platforms to actively exercise shareholders’ voting privileges. This push prompted essential updates from various platforms. Now, shareholders receive prompts to participate in every vote, irrespective of activist involvement. This practice encourages greater accountability, compelling boards and managers across funds, trusts, and standalone companies to justify their performance.

The actions of Saba have compelled both investment trust boards and platforms to reassess their engagement methods. Advancements in technology are simplifying the voting process for shareholders, eliminating significant barriers and costs. Voter participation in the recent Edinburgh Worldwide poll reached an impressive 70%, marking a historic peak. A substantial portion of these participants were likely first-time voters, increasing the probability of sustained engagement moving forward. Industry insiders report that investment companies are intensifying efforts to foster better dialogue with their shareholders. This development represents a substantial win for the entire investor community. Simultaneously, it serves as a cautionary signal to fund managers: many shareholders are newly aware of their rights and prepared to exercise them. Ultimately, this shift constitutes a profound triumph for shareholder democracy in the UK.