Boaz Weinstein, founder and chief investment officer of Saba Capital Management, attends a Bloomberg Invest event in New York, USA, on Wednesday, June 7, 2023.
Gina Moon | Bloomberg | Getty Images
Boaz Weinstein, hedge fund investor on the winning side JP Morgan Chase The $6.2 billion lost in the 2011 “London Whale” trade will now be traded with a giant index fund. black rock.
On Friday, Mr. Weinstein’s Saba Capital detailed plans to drive change in 10 closed-end BlackRock funds that trade at deep discounts to the value of their underlying assets relative to their peers in a presentation viewed by CNBC. explained. Saba argues that the poor performance is a direct result of BlackRock’s management.
The hedge fund wants to gain control of the boards of three BlackRock funds and minority stakes in seven others. It is also seeking to oust BlackRock as the manager of six of these 10 funds.
“Over the last three years, nine out of 10 funds that we talk about have caused investors to lose money,” Weinstein said on CNBC’s “Squawk Box” earlier this week.
At the center of Saba ishello blackrockSaba said in its presentation that it operates these closed-end funds in “the exact opposite” way that BlackRock expects its companies to operate.
By doing this, BlackRock is “speaking from both sides of the aisle,” Saba said. According to Saba’s calculations, retail investors would be facing a discounted cost of $1.4 billion on top of management fees.
BlackRock said in a filing that Saba “sees itself as a governance leader, but it is squelching shareholder rights.” For example, in certain BlackRock funds, if an investor does not submit a vote at a shareholder meeting, their shares will automatically support BlackRock. Saba is suing to change that.
A BlackRock spokesperson called the claim “highly misleading” and said the funds “simply require that a majority of shareholders vote affirmatively.” Ta.
Index fund manager’s rebuttalprotect your funds” describes Saba as an activist hedge fund that aims to “enrich itself.”
Problem and solution
Closed-end funds have a finite number of shares. Investors who wish to sell their positions must find an interested buyer. This means you may not be able to sell at a price that reflects the value of your holdings in the Fund.
In contrast, open-end funds allow investors to redeem shares with a manager in exchange for cash. Many index funds that track the S&P 500 are structured this way.
Saba says there is a solution. BlackRock should buy back stock from investors at a price commensurate with its value, not where it currently trades.
“Investors who want to come out will come out, investors who want to stay will stay for 100 years if they want to,” Weinstein told CNBC earlier this week.
Mr. Weinstein, who founded Saba in 2009, made his fortune two years later when he noticed that a relatively unknown credit derivatives index was behaving abnormally. Saba began buying underlying derivative products that JPMorgan’s Bruno Iksil was selling without his knowledge. Saba suffered heavy losses in that position for some time, but Ixil’s bet went against him, costing JPMorgan billions of dollars and giving Saba a huge profit.
Saba said in an investor document that BlackRock’s transformation could take the form of a takeover offer or reorganization. The presentation noted that BlackRock had previously committed stock to support a bid for another closed-end fund in which activists were pushing for similar change.
Saba is seeking shareholder approval to fire the manager of a fund it calls the worst performer compared to its peers over the past three years. BlackRock has a total of six businesses, including the BlackRock California Municipal Income Trust (BFZ), the BlackRock Innovation & Growth Term Trust (BIGZ), and the BlackRock Health Sciences Term Trust (BMEZ). The fund is seeking a new management team.
“BlackRock has failed as a manager, delivering below-average performance and worst-in-class corporate governance relative to relevant benchmarks,” Deck said.
If Saba receives shareholder approval to remove BlackRock as manager of the six funds, the newly formed board will conduct a review process that will take at least six months. In addition to providing liquidity to investors, Saba said the director candidates will seek lower fees and other unspecified governance amendments.
A BlackRock spokesperson told CNBC that the company has taken steps to improve the returns of its closed-end funds as needed.
“BlackRock’s closed-end funds welcome constructive engagement with thoughtful shareholders who act with integrity in our shared goal of increasing long-term value for all,” the spokesperson said.
Weinstein said Saba has run similar campaigns in about 60 closed-end funds over the past decade, but has only taken over management of the funds twice.of Hedge fund sues BlackRock Last year, it removed so-called “vote disenfranchisement clauses” in certain funds; filed another lawsuit earlier this year.
BlackRock marketed itself to shareholders through mail and advertising. BlackRock told investors that “reliable and profitable investments” were under threat from Saba.
Saba plans to hold a webinar for shareholders on Monday, but said BlackRock has refused to provide a list of shareholders for some funds. A BlackRock spokesperson said the company had “always acted in compliance with all applicable laws” when providing shareholder information and had “never impeded Saba’s access to its shareholders.” Ta.
“What we want is for our largest, but not the majority, shareholder to make $1.4 billion. We can do that at the push of a button,” Weinstein told CNBC earlier this week. told.
clock: Full CNBC interview with Saba Capital’s Boaz Weinstein
