The recent votes at six investment trusts on the radical proposals from Saba Capital have highlighted just how vital it is for shareholders to stand up and be counted when it comes to deciding their trust’s future.
So far, we have seen record numbers of retail investors turning out to vote in these ballots, with an overwhelming majority in favour of maintaining the boards, managers and mandates of the trusts in question.
I believe this is evidence of the long-term view that investment trust shareholders take when committing their money to closed-ended funds, and a rejection of Saba’s criticism of short-term performance during the past three years.
But there are clearly some lessons to be learned from the Saba situation. Although the large platforms stepped up, did the right thing and encouraged shareholders to vote, the process has highlighted the difficulties some shareholders faced voting.
Some had not been informed of the ballots or dates, some faced hefty fees for exercising their vote, while others have been refused the right to vote at all. This is clearly completely unacceptable – shareholders must be able to have their say on the future of their investment trust!
Sadly, none of this should come as a much of a surprise. Research conducted by the Association of Investment Companies (AIC) on voter habits in 2023 found that only around 20% of retail investors “often” voted their shares, with 64% “rarely” or “never” voting.
Why? The same research found that 17% of retail investors said the voting process was too complex, while 13% were unaware they could vote at all!
Investment advisers fared even worse, with a worrying three quarters of those questioned saying that they did not vote clients’ shares on their behalf, nor did they help shareholders to vote themselves.
Indeed, it’s probably fair to say that the only reason that voter participation has been so high in the ongoing Saba saga is the extraordinary amount of campaigning by the trusts, fund managers and the wider industry, including the AIC. Together with invaluable support from the media, this has kept the issue front of mind and motivated shareholders to vote.
But this flurry of ballots against an activist is very much an exception. I don’t ever recall any corporate activity in the investment trust industry garnering such widespread attention and strength of feeling.
Also, let’s remember, even if all seven investment trusts reject Saba’s proposals, it is still going to be the largest individual shareholder in these trusts and may have other plans up its sleeve. Not only that, Saba has stakes in over 25 investment trusts.
With all this in mind, the AIC has launched its ‘My share, my vote’ campaign. The idea is to change some of the poor practices among some investment platforms and providers, such as the punitive charges, failing to pass on voting rights and information, and declining to vote shares even when requested to do so.
The AIC has written to Jonathan Reynolds MP, the Secretary of State for Business and Trade, to call for a change in company law (Part 9 of the Companies Act 2006) so that nominees, including platforms, must offer information and voting rights to the beneficial holders of shares or their advisers.
If we are serious about shareholder democracy, investors must be able to have their say. It’s good that the large platforms have improved shareholder engagement significantly in recent years, and they have acted quickly in response to the Saba proposals. They have had record levels of investors voting at the trusts targeted by Saba.
But we have to move beyond just relying on firms to do the right thing. We cannot have a situation where investors and their advisers are actively prevented from exercising their voting rights because the law allows their platform or service provider to choose not to pass on those rights. Voting clearly needs to be easy and straightforward for everyone.
Interestingly, in an age of webinars and zoom calls, our research suggests that allowing investors to join AGMs online would increase participation by retail investors. Nearly two thirds (65%) of those surveyed said they would join if an online option was offered.
We very much hope you will join our campaign to ensure everyone can vote. We want to be sure that investor democracy not only survives but thrives in the future.
