- The Saba Capital CEF Special Opportunities Fund II returned about 42% after fees in the nine months to September 30, against 4.6% for all of last year and 16.4% in 2024, driven by restructurings at trusts including Herald Investment Trust and a vehicle managed by Terry Smith’s Fundsmith that let shareholders exit at better prices.
- The campaign worked by failing. Weinstein began a battle in December 2024 to take control of seven UK trusts, asking many to replace their directors. Those initial attempts were defeated, and several of the targeted trusts subsequently made the structural changes Saba had sought.
- The position is large and leveraged. Saba has exposure of more than £2 billion, about $2.7 billion, across as many as 50 London-listed companies including leverage, from a firm managing $6.8 billion in total.
- Weinstein is considering reopening the fund to fresh capital, having last admitted subscriptions more than two years ago. A representative for Saba declined to comment.
What Happened?
The strategy involves buying London-listed vehicles trading at wide discounts to the value of their underlying assets, and profiting when those discounts narrow, typically after a manager buys back shares. Bloomberg’s data shows UK trust discounts have narrowed across the sector during the campaign. Weinstein, a former co-head of credit trading at Deutsche Bank who founded Saba in 2009 and is known for his role in exposing the London Whale, has also spent years buying US closed-end funds run by BlackRock and other large managers. The main UK-focused fund held $244 million at the end of 2024 before returning some cash. One of Saba’s current campaigns seeks board seats at the Baillie Gifford US Growth Trust, which counts Anthropic among its largest holdings.
Why It Matters?
Losing the votes and winning the outcome is the instructive part, and it applies to anyone holding UK investment trusts. Boards that successfully resisted Saba’s director slates went on to implement buybacks and restructurings that narrowed their discounts, which means shareholders who voted against the activist were rewarded by his presence. Sector-wide discounts have compressed, so holders of trusts Saba never targeted have also benefited. For investors in this asset class the practical conclusion is that the threat of activism is doing more work than any individual campaign, and that persists only while the threat remains credible. The leverage and concentration are the risk nobody is discussing. More than £2 billion of exposure, including borrowed money, across 50 illiquid London-listed vehicles, run by a firm with $6.8 billion under management, is a very large position in a corner of the market where exits are slow. The strategy profits when discounts narrow; discounts widen in risk-off conditions, and they widen fastest in exactly the vehicles holding the least liquid assets. A leveraged book built on discount compression has an asymmetric response to a market dislocation. The decision to consider reopening to capital after a 42% run deserves the standard scepticism. Funds typically reopen following strong performance, which is usually when the opportunity has already been harvested, and in this case the return came precisely from closing the discounts that constituted the opportunity. The narrower those discounts become, the less room remains. Prospective investors should ask what the current average discount across the portfolio is relative to where it stood in December 2024.
What Next?
The Baillie Gifford US Growth Trust board contest is the live campaign, and Bloomberg has reported Weinstein is set to prevail. Watch whether the fund reopens and on what terms. For trust holders generally, the sector discount level is the measure of how much of this opportunity remains. Any widening of discounts in a risk-off episode would test a leveraged book built on the opposite outcome, and markets have been unsettled this week.
Affected Tickers and Coins: BLK
Source: Bloomberg
