(Update) Saba has lost in its latest battle to oust the boards of two Baillie Gifford investment trusts, it was announced this afternoon.

Shareholders in Baillie Gifford US Growth (USA ) and Keystone Positive Change (KPC ) voted against the US activist’s proposals to replace the current directors of both trusts with one Saba fund manager and another chosen nominee in each case. 

Following a general meeting this afternoon, Baillie Gifford US Growth announced that, on an over 78% turnout, 65.6% of votes, or just under two thirds, went against Saba’s proposals. 

Keystone’s incumbent board won by a clear but slightly narrower margin, with just over 60% of votes going in its favour. Turnout was slightly lower at around 72%. 

Given Saba’s near 30% stake in the Baillie Gifford trusts, the Edinburgh firm had been concerned about whether enough retail shareholders would vote to see off the US activist, as it tries to take control of the funds.

Saba boss Boaz Weinstein, who had nominated himself as a director on the US trust, has singled Baillie Gifford out for particular criticism during his campaign against seven targets.

Addressing the recent marked underperformance of USA, KPC and fellow target Edinburgh Worldwide (EWI ) in a public webinar in mid-January, Weinstein repeatedly asked Baillie Gifford: ‘Aren’t you embarrassed?’

As with the first general meeting at Herald (HRI ) investment trust, which Saba lost by a wide margin two weeks ago, this afternoon’s votes were characterised by a very low number of other shareholders voting on Saba’s side. 

Baillie Gifford US Growth said that, excluding Saba’s votes, 98.5% of votes were cast against the US hedge fund firm. 

At Keystone the same metric was 99.2%.

While neither Weinstein nor Saba portfolio manager Paul Kazarian are believed to have attended either general meeting themselves – something that sparked annoyance from investors at the Herald vote – sources told Citywire the firm had sent legal representatives in person.

‘Strong repudiation’, high retail turnout

In the wake of the votes, Baillie Gifford marketing boss James Budden said the outcomes represented ‘a strong repudiation of Saba’s proposals’, as well as an affirmation of the strong governance by boards in the sector. 

Tom Burnet, the chair of the £746m US Growth trust, said: ‘Faced with the threat to their investment posed by Saba’s self-serving and destructive proposals, shareholders have mobilised and acted decisively to protect their investment. The result is unambiguous and conclusive.’

Keystone Positive Change said it would try to progress plans – effectively blocked by Saba last month – to offer an uncapped cash exit or rollover into Baillie Gifford’s similarly-managed Positive Change fund. 

This morning, both Hargreaves Lansdown and AJ Bell separately published metrics highlighting that their retail investor clients had come out in atypical force for the Saba votes.

Source: Hargreaves Lansdown, AJ Bell (*EWI voting remains open)

Hargreaves Lansdown published the percentage of its customers who are shareholders in the seven trusts and voted, with head of platform investments Emma Wall celebrating ‘record high voting levels’. 

AJ Bell published similar data on the percentage of shares held on its platform in the target trusts that were voted. 

‘Saba’s intervention in the investment trust sector has clearly raised questions about how persistent discounts can be addressed,’ said Laith Khalaf, the platform’s head of investment analysis. ‘There had been some scepticism expressed at whether retail shareholders would exercise their voting rights, but it’s now clear that huge swathes of them have defied the doubters.’

Both platforms have taken steps, including emailing customers, to alert them to the votes.

EWI’s lower turnout so far is explained by the fact voting opened later, with its own general meeting tabled for 14 February.

What next?

The Baillie Gifford trusts are among seven being targeted by New York-based Saba, which built up big stakes before requisitioning general meetings shortly before Christmas, accusing their boards and managers of presiding over poor performance and wide discounts. 

If eventually successful in replacing boards, Saba’s plan is to offer shareholders some kind of cash-out, before likely appointing itself as manager and turning the trusts into vehicles to attack other discounted closed-end funds. 

CQS Natural Resources Growth & Income (CYN ) and Henderson Opportunities (HOT ) face their own equivalent votes tomorrow before The European Smaller Companies Trust (ESCT ) on Wednesday.

Saba’s criticisms of recent performance at Baillie Gifford US Growth and Keystone Positive clearly have some merit. For example, shareholders in the former are up 15.4% over three years, well behind 51.3% for the S&P 500, according to Deutsche Numis data.

Even if Saba loses all seven votes – something that is still by no means guaranteed – how its campaign will develop from here remains an open-ended question.

Based on lessons from the firm’s similar actions against closed-end funds in the US, analysts see big tender offers – to try to reduce Saba’s near 30% stakes in the trusts – or the tabling of further votes as likely outcomes. 

The writer is an investor in The European Smaller Companies Trust.