Saba Capital Management has requested a US judge to prevent BlackRock from employing a tactic that Boaz Weinstein’s hedge fund firm claims will restrict investors’ rights to elect the board of one of its closed-end funds, according to a report by Pensions & Investments.
Saba argues that BlackRock is exploiting a bylaw to keep unelected trustees in place indefinitely, circumventing a federal law requirement that mandates at least two-thirds of a board be elected at an annual shareholders meeting. According to Saba, BlackRock appointed all 10 trustees of the fund at its inception in 2021.
During a 12 June hearing in Manhattan, Saba’s attorney Mark Musico urged US District Judge Margaret Garnett to issue an injunction against BlackRock: “Saba is not just in here as a sore loser, Saba is in here to make sure shareholders can elect trustees as they are entitled to do.”
Saba filed a lawsuit against BlackRock in March, alleging that the company’s $1.9bn ESG Capital Allocation Trust adopted a bylaw which makes it difficult for new candidates to become fund trustees, as it requires challengers to secure a majority of shareholder votes, while incumbent trustees running unopposed only need a plurality of votes cast.
Saba contends this bylaw “virtually guarantees” the failure of elections, ensuring current trustees remain as holdovers, citing the results of the last election last August.
Saba, which holds about 27% of the fund, has also nominated candidates for the boards of 10 BlackRock closed-end funds.
Saba has previously targeted funds managed by major players Nuveen and Franklin Resources in the $250bn closed-end fund industry, typically those trading at significant discounts to their asset values, and advocating for measures like share buybacks and fund liquidations to enhance returns. Saba previously won a legal victory against closed-end funds with a US court ruling in December that 11 funds, some managed by BlackRock, had illegally limited Saba’s voting rights.
BlackRock has requested Judge Garnett dismiss the case, arguing that Saba seeks an “unprecedented interpretation” of the 1940 Investment Company Act, while Tariq Mundiya, BlackRock’s attorney, asserted on 12 June that the current directors “were in fact elected and will serve until a successor is elected.” Mundiya claimed Saba aims to exploit its influence for advantage and has known about the bylaw since purchasing shares in 2022, but only filed suit in March.
As of December, almost 70% of Saba’s $5.6bn in equity assets were in closed-end fund positions, more than double the dollar amount from the previous year.
Judge Garnett has indicated she will issue a decision soon.
The case is titled Saba Capital Master Fund Ltd vs. BlackRock ESG Capital Allocation Trust, 24-cv-01701, U.S. District Court, Southern District of New York (Manhattan).
