American hedge fund challenges Saba in battle for control of UK trusts

An esteemed American hedge fund has found itself embroiled in a standoff with a New York-based activist shareholder over the management of seven British investment trusts. Regulatory filings have revealed that Brookdale, a fund managed by Weiss Asset Management under the leadership of economist Andrew Weiss, has recently taken short positions in shares of Edinburgh Worldwide and Herald, two trusts targeted by Saba Capital.

Shorting, a common strategy employed by hedge funds to profit from anticipated share price declines, indicates that Brookdale is taking a contrasting approach to Saba’s aggressive campaign to assume control of the trusts. Saba, led by investor Boaz Weinstein, has strategically acquired large stakes in the seven trusts, aiming to oust their boards through a contentious activist movement that has disrupted the tranquility of the London stock market.

In contrast to Weinstein’s bold tactics, Andrew Weiss, with his impressive background in economics and academic collaboration with Nobel laureate Joseph Stiglitz, strategically oversees the operations of Brookdale.The contrasting approaches of Saba and Brookdale in their investment strategies highlight the diverse methodologies employed by hedge funds in managing their investment portfolios.

Weinstein’s targeting of the London-listed trusts stems from their lackluster stock performance in recent years. With plans to replace existing directors with his own candidates and ultimately seize control of trust management, Saba’s aggressive efforts have faced opposition from all the trusts, urging shareholders to resist Weinstein’s proposals. Recently, Herald’s shareholders rejected Saba’s initiatives, marking a setback for the activist shareholder.

Despite Saba’s shareholding of approximately 29% in Herald, triggering a significant upsurge in the trust’s shares, potential selling pressures associated with offloading such a substantial stake could benefit Brookdale. The latter holds a short position of 0.52% in Herald, positioning itself to profit from any subsequent share price declines resulting from Saba’s actions.

Additionally, Brookdale has established a 0.81% short position in Edinburgh Worldwide, following Saba’s acquisition of a stake exceeding 24% in the trust. The impending vote on Saba’s proposals on February 14 by Edinburgh Worldwide’s shareholders indicates a critical juncture in Weinstein’s campaign, with significant impacts on the trust’s market performance.

As the saga unfolds, the standoff between Saba and Brookdale underscores the complexity and diversity of investment strategies employed by hedge funds. While Saba continues its aggressive pursuit of trust management takeovers, Brookdale’s calculated short positions provide a counterbalance to these initiatives, setting the stage for an intriguing battle in the financial markets.