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Activist hedge fund manager Boaz Weinstein has suffered multiple setbacks in his bid to take over a series of closed-end BlackRock funds after shareholders rejected his director nominees and voted to retain the fund manager.
Weinstein’s Saba Capital filed candidates this spring to join 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 managers did not managed to close the gap between fund prices and the value of its underlying assets. Saba also sought to terminate BlackRock’s management contract on six of them.
But BlackRock on Friday announced that shareholders in eight of the funds had retained BlackRock directors and five termination attempts had failed. Two funds have extended their voting deadline to July 16 in an effort to reach a quorum.
Weinstein has led 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 buy assets.
Unlike traditional mutual funds, they do not allow investors to redeem with the funds’ net asset values. This means that discrepancies can open up between the share price and the value of the underlying assets. New York-based Saba has $5.8 billion invested in 200 closed-end funds and often pushes managers to close valuation gaps by buying back shares or converting the 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 argue that the structure allows them to make investments with a longer-term perspective and invest money in illiquid assets without having to worry that quick redemptions could force a fire sale. They claim the funds are vulnerable to activists seeking quick profits at the expense of long-term gains.
Glenn Hubbard, chairman of the BlackRock funds board, said: “For the second year in a row, Saba has failed to convince shareholders that Saba will deliver more value than the current administration and fund management teams.”
“These proxy campaigns have illustrated how vulnerable closed-end funds are to a single, vocal, deep-pocketed activist whose perspective on fund strategies and governance does not align 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 on its nominees or termination of the management contract.
Saba had claimed in investor presentations that BlackRock’s managers had “proven incapable of delivering long-term outperformance”, and she pointed to her track record of working with other fund boards to reduce valuation gaps or to ‘turned into open-ended funds.
BlackRock countered by pointing to Saba’s track record in two closed-end funds it acquired from Voya and Franklin Templeton. According to BlackRock’s presentation, management fees at each fund rose and the funds continued to trade at a steeper discount than their peers, as measured by Morningstar.
In the battle, BlackRock took advantage of fund bylaws that require new candidates to fund boards to get approval from a majority of all shareholders, not just those who vote. Saba contested these in court. Institutional Shareholder Services representative counsel recommended that shareholders reject the termination requests but support some of Saba’s nominees.
Weinstein has also bought shares in UK investment trusts, a type of investment vehicle that is structured like a public company, with characteristics similar to US closed-end funds.