Stay informed with free updates
Simply log in to Financial services myFT Digest – delivered straight to your inbox.
Activist hedge fund manager Boaz Weinstein has suffered multiple setbacks in his bid to take control of a number of closed-end BlackRock funds as shareholders rejected his director nominations and voted to retain the fund manager.
Weinstein’s Saba Capital this spring proposed candidates to the boards of 10 closed-end funds managed by BlackRock with a combined market value of about $10 billion, arguing that they underperformed competitors and the managers failed to bridge the gap between the funds’ prices and the value of its underlying assets. Saba also sought to terminate BlackRock’s management contract with six of them.
However, BlackRock announced on Friday that shareholders of eight funds had retained BlackRock directors and that five termination attempts had failed. The two funds have pushed back the voting date to July 16 to try to reach a quorum.
Weinstein has waged an aggressive campaign against BlackRock management as part of a broader attack on the $250 billion closed-end fund industry. Closed-end funds issue a fixed number of publicly traded shares and use investors’ capital to purchase assets.
Unlike traditional mutual funds, they do not allow investors to repay the net asset values ​​of the funds. This means that discrepancies can open up between the share price and the value of the underlying assets. New York-based Saba has invested $5.8 billion in 200 closed-end funds and often pushes managers to close valuation gaps by buying back shares or converting funds to an open-ended structure that allows buybacks.
Saba and Weinstein did not immediately respond to requests for comment.
Proponents of closed-end funds say the structure allows them to invest with a longer-term perspective and put money into illiquid assets without worrying that a quick redemption could force a sell-off. They say the funds are vulnerable to activists seeking quick profits at the expense of long-term gains.
Glenn Hubbard, chairman of BlackRock’s funds, said: “For the second year in a row, Saba has failed to convince shareholders that Saba will deliver greater value than the current management and fund management teams.”
“These proxy campaigns have illustrated how vulnerable closed-end funds are to a single, vocal, deeply entrenched activist whose view of fund strategies and management is out of step with other shareholders and their investment objectives,” he added. .
BlackRock said that across all funds, less than 11 percent of outstanding shares voted with Saba for its nominees or to terminate the management agreement.
In investor presentations, Saba argued that BlackRock’s managers had “demonstrated an inability to deliver long-term outperformance” and pointed to its experience working with other fund boards to close valuation gaps or convert to open-end funds.
BlackRock countered by pointing to Saba’s track record at two closed-end funds, which it took over from Voya and Franklin Templeton. According to BlackRock’s presentation, management fees increased for each fund and the funds continued to trade at a greater discount to their peers as measured by Morningstar.
In the battle, BlackRock benefited from the fund’s bylaws, which require new nominees to finance boards to get the approval of a majority of all shareholders, not just those who vote. Saba challenged them in court. Institutional Shareholder Services proxy counsel advised shareholders to reject the termination requests but to support some of Saba’s nominees.
Weinstein also bought stakes in UK mutual funds, a type of investment vehicle that is structured like a public company, with similar features to US closed-end funds.