LONDON — Britain’s financial regulator unveiled proposed changes on Friday to the rules governing investment trust listings, with the goal of strengthening protections for shareholders following a wave of campaigns by U.S. activist investor Saba Capital.
The Financial Conduct Authority said the proposed reforms are designed to better manage conflicts of interest involving activist investors, a group that has ramped up its involvement in investment trusts over the past two years.
Saba’s activity in the sector has been significant — the firm successfully pushed out the board of Edinburgh Worldwide Investment Trust in April, installing its own chosen directors as replacements.
The FCA’s Friday statement did not mention Saba by name. The firm was not immediately available to respond to requests for comment.
Earlier this year, the then-chairman of Edinburgh Worldwide, Jonathan Simpson-Dent, publicly criticized the current regulatory framework. He argued it deserved a closer look, pointing out that holding just a 30% stake could be sufficient to remove an entire board.
Saba has defended its actions in the past, contending that they are necessary to address what it describes as underperformance among British investment trusts.
Back in March, the FCA acknowledged the ongoing debate about its role regarding investment trusts — without naming Saba directly — and indicated it would move up a planned review of the listing rules.
The regulator said its proposals are open for public feedback through August 16. Among the key changes, the FCA said the reforms would tackle conflicts of interest that arise when directors are put forward by a major shareholder, and would also ensure that minority shareholders are shielded in situations where large shareholders who also serve as managers get to vote on significant changes to investment policies.
“Strong shareholder rights and minimal conflicts of interest are crucial to well-functioning markets, including for investment trusts,” said Jon Relleen, the FCA’s director of infrastructure and exchanges.
The Association of Investment Companies, which represents investment trusts, expressed support for the FCA’s direction.
“These proposals would strengthen investor protection, particularly when a substantial shareholder like Saba Capital seeks to replace the board and become the manager,” said Richard Stone, the organization’s chief executive.
