The Association of Investment Companies (AIC) has written to the Financial Conduct Authority (FCA) to raise concerns about Saba Capital Management’s proposed changes at seven investment trusts.

It stated that it was worried about the protection of retail shareholders’ interests following Saba’s requisition of general meetings at the investment trusts.

The letter focused on the roles of platforms under the Consumer Duty and the importance of board independence for investment trusts.

“Following Saba’s action, we are concerned that the current regulations do not protect the interests of retail shareholders,” stated AIC chief executive, Richard Stone.

“Saba is targeting investment trusts with a high percentage of retail investors, so it’s vital they have their say on the activist’s radical proposals to replace the board, change the investment strategy and become the investment manager.”

Initially, Saba has proposed replacing the current independent boards with just two new directors and has stated its intention to follow this with a replacement of the investment manager and a new investment mandate.

This could lead to a change in asset exposure, investment risk, and return profile of the companies.

The seven trusts affected are: Baillie Gifford US Growth, CQS Natural Resources Growth & Income, Edinburgh Worldwide, The European Smaller Companies Trust, Henderson Opportunities Trust, Herald Investment Trust, and Keystone Positive Change.

The first requisitioned general meeting is with Herald Investment Trust on Wednesday (22 January).

“We are relying on platforms’ support to get this information out to their customers and encourage them to vote,” Stone continued. “Thankfully they have been broadly supportive of our call for action.

“With so much at stake, the regulator can’t just rely on people doing the right thing. Platforms have important obligations under the Consumer Duty to support their customers’ understanding of Saba’s proposals and any others in the future.

“We believe investors should be automatically opted in to receive communications on corporate actions.

“When significant changes to an investment trust are proposed, platforms should actively contact their clients to encourage voting. We want voting to be accessible and made clear and simple for all customers.”

Stone called on the FCA to urgently explain its views on the independence of directors under Saba’s proposals.

“If Saba wins the vote and is proposed as manager, how will potential conflicts of interest be managed?” he queried.

The FCA was also urged to review the scope of board independence in the Listing Rules, as the AIC felt Saba’s campaign raised questions about the independence rules if they permit a significant shareholder, who may have a conflict of interest, to effectively select board members, especially when those board members may go on to appoint that shareholder as the asset manager.

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