Mind the Gap last month mentioned in passing that activist investors are circling some Baillie Gifford funds that trade at big discounts. I didn’t think it affected any of the investment trusts I own but I was wrong.
Four years ago I bought shares in Herald Investment Trust in a SIPP (Self Invested Pension Plan). I didn’t keep this a secret, read Hark the Herald. It has lived up to expectations in being volatile but the big picture is satisfactory and the 8% discount is now less than 2%.
The Art Deco Chrysler Building was finished in 1930 and remains the tallest (1,046 feet) brick building with a steel frame in the world. I visited in 1983 to see a potential client whose office was high up on a corner with glass walls. Invited to admire the view I had my first intimation that, like the character Richard Gere plays in Pretty Woman and James Stewart in Vertigo, I am afraid of heights. Today Saba Capital Management has offices there. Saba, founded in 2009, is a small (41 employees) activist investor trying to shake up under-performing UK investment trusts. It has bought around 20% of Herald and wants to sack the entire board and do a bit of asset stripping, supposedly for the benefit of Herald’s shareholders but really to benefit Saba. Furthermore, I don’t trust a company that has a picture of a dog in a bow tie (Max, Chief Happiness Officer!) on its website.
As Saba live in the Chrysler Building let’s look under the bonnet at Herald. Small digression; all the warning lights have been extinguished on my car after a service, oil change and an oil change in the gear box flagged as a “drive train” issue. Herald was founded by Katie Potts in 1994 since when she has been managing director and fund manager. Herald’s share price since inception has gone up by more than 2,400 %. This is the sort of continuity and long term performance I look for in a fund. The McInroy & Wood Balanced Fund (founded in 1990) has gone up 1,200 % but has a much more conservative investment strategy.
Saba’s strategy is short-term opportunism. This is not always bad but for Herald it is as welcome as a visit from the Vikings to collect Dane-geld. Read Kipling’s poem – here is the first verse.
It is always a temptation to an armed and agile nation
To call upon a neighbour and to say:
“We invaded you last night — we are quite prepared to fight,
Unless you pay us cash to go away.”
Katie Potts’ response to Saba’s unwanted advances is robust and uncompromising. I have voted.
