A few factors in recent times have led me to reflect on whether some funds known for shareholder activism perform well.

Sometimes it is ironic to see these funds trade at large discounts to NAV, yet often the activists have criticized other funds for this very reason.

In Australia, we are close to a decade from when a few activist style LICs launched, so surely that is long enough to judge to some extent?

An overseas activist fund is slowly building up some stakes in ASX closed end funds, so I thought it would also be interesting to check out some US activist funds.

Saba Capital

Saba Capital Management have lodged substantial shareholder notices in at least a few ASX LICs that spring to mind. I have recently touched on the fact here that they are almost the largest shareholder in VGI Partners Global Investments Ltd (ASX:VG1). They are likely sitting on some holdings of other ASX LICs below the 5% threshold.

Saba has a closed end fund in the US (NYSE:BRW), that has been trading lately at a 10-12% discount to NAV. This is at the wide end of a range currently, with it often trading in the 5 to 10% range in the last few years. Therefore it is probably easy for them to be somewhat critical of VG1 ASX, for the time being anyway. It may be better to campaign against VG1 ASX sooner rather than later, as it would be ironic if the BRW discount widened to where the VGI discount sits right now.

This fund Saba took over around June 2021. About a week ago when I looked at it, it had returned about 10% in NAV terms since. This does not seem that great, but I rate this better than many of the funds further down I shall examine. This particular period of about two and a half years has been tricky for most funds. Saba’s (NYSE:BRW) has done better than the S&P500, with lower drawdowns and has run quite a defensive strategy at times in this period.

Boaz Weinstein, the founder of Saba, has created quite a few headlines with the campaign against various BlackRock funds this year. To quote Boaz “What they are doing to entrench with respect to stripping shareholder rights, banning shareholder proposals which they’ve done, puts them at the G side of governance as the worst company in the S&P 500.”

Perhaps some quotes like that are what is needed in the Australian closed-end fund market.

Bulldog Investors

Bulldog Investors have a closed end fund in the US (NYSE:SPE), that has been trading lately at a 16-18% discount to NAV.

Their annual report mentions a 10-year performance to June 2023 of 5.79% per annum in NAV terms.

This is less than half of what the S&P500 did in that period. To be fair though, the SPE portfolio arguably takes less risk.

Only last month I discovered an article here on how Wall Street Managers Pile Into Closed-End Funds on Discounts | Wealth Management.

Bulldog investors were able to provide this quote in the article “You’ve got to have a big enough position that they know that there is a threat if they ignore you, that you’re not just going to go away,” Goldstein said. “That’s why we call ourselves Bulldog Investors — we’re tenacious.”

Meanwhile their own CEF trades at an 18% discount to NAV.

AVI Global Trust PLC

AVI Global (LSE:AGT), has an interesting strategy where it targets discounts to asset shares and is very diversified globally. Recently over half the portfolio is in global “holding” companies as they describe them often run by long standing family interests. They also had about 30% of their portfolio in closed-end funds at the end of October.

Unlike the other funds in this blog post, their total expense ratio was kept below 1%.

This has assisted them in achieving solid returns. In the 2022 annual report their 10-year annualized return figure was above 9% per annum.

This consistent performance has meant the shares rarely trade at as large a discount as some others in this blog post. This year they have been around the 10-12% discount mark.

WAM Strategic Value

WAM Capital’s (ASX:WAR) has been trading at a discount of circa 12% at the end of October.

Another ASX LIC in the WAM stable, WAM Global (ASX:WGB), was at a discount of circa 15%.

The shareholders of WAM Global appear like they are somewhat at war with WAM. Strangely, although the media has reported heavily on remuneration “strikes” at other AGMs this season, I found it hard to find a report on this. Yet the AGM results at WGB make for interesting reading.

In fact, the consistent “strikes” recorded at the WAM Global AGMs in the last few years have been kept so quiet that the company itself seemed to “forget” about them!

The possibility of a second strike in 2022 should have been accompanied by a conditional spill resolution. One would think an activist investor like WAM Capital should be all over details like that.

It took them almost 2 weeks to correct this little oversight, when they then released the addendum to notice of AGM announcement.

By the way, the 2022 WAM Global AGM results also make for interesting reading, almost hard to get your head around.

When I search for articles about poor performance at the VG1 ASX LIC and the large discount, I find a stack of articles on that even though they are yet to get a strike. (although the next VG1 AGM is imminent).

That is part of the reason for my blog posts of late, simply to present the facts that are not being pointed out from the media or being kept relatively quiet by management.

WAR has the 4-pronged strategy that attempts to avoid the problems of ASX LICs trading at a discount. This includes “making sure the LIC treats shareholders fairly”.

In very general terms, a fund manager treating shareholders fairly would not be expected to see a high number of votes against the remuneration report.

WAR charges a performance fee of 20% on positive returns. i.e., on no specific benchmark.

WAR had an IPO price of $1.25 in July 2021. The shares finished trading at the end of October at $1, but it paid 6.5 cents in fully franked dividends during that time.

Sandon Capital

Sandon Capital’s (ASX:SNC) has also struggled to avoid trading at a sizeable discount, its discount was circa 14% at the end of October.

The October NTA report stated performance since inception date (which was December 2013) of 7.2% per annum. That figure is “before performance fees and corporate expenses”.

Sandon charges a performance fee of 20% of returns above the 1-month BBSW rate.

Global Value Fund

The Global Value Fund (ASX:GVF) is a rare example of an Australian closed end fund that has seen its shares trade at a price quite close to the underlying NTA since inception, around a decade ago.

According to the latest NTA report for October 31, the returns are estimated to be above 10% per annum, over a period of greater than 9 years. Quite solid performance.

GVF charges a performance fee of 15% of returns above the benchmark which is – Australian 1 year interest rate swap reference rate plus 4%.

Thorney Opportunities Fund

The Thorney Opportunities Fund (ASX:TOP) began almost a decade ago now out of a backdoor listing.

Only this week did they finally implement a “high watermark” to the expensive performance fee structure of charging 20% on positive returns. Before that, it remained one of the few I have observed not having a high watermark. I had thought those days were a thing of the past.

The latest TOP NTA report for October quotes a performance return of just above 8% per annum since inception. At the end of October though, TOP shares were trading at about 44 cents, compared to the after tax NTA at the time of 69 cents, i.e., a 36% discount. If one was to base the performance measure on the assumption one had to exit at 44 cents, that would shave off a significant amount of the quoted 8% per annum,

When TOP began almost a decade ago their strategy was according to this The Age article ..

“The fund is expected to pour money into a small group of listed companies, acting as an activist investor to shake up underperforming companies to unlock value for itself and other investors.”

What would most activist investors say to a targeted closed end fund that trades at a 36% discount to NTA?

Conclusion, does shareholder activism work?

Shareholder activism appears to be struggling to help the small investor, IF such investor is trying to benefit by investing via the activist fund manager.

There might be value add opportunities if you can pick up such activist funds’ at large discounts to NAV, but it can be a bit hit and miss. You also need to see the fund managers being very active in their efforts and demonstrating some clear skills. The evidence can be quite debatable in that regard.

Whether it works though for these activists closed end funds is somewhat subjective. I just thought I would present some facts that are often kept quiet. i.e. management fees, discounts of the activist LICs themselves, returns if adjusted for such discounts, longer term (circa 10 years) performance if applicable etc..

Do we need activist campaigns on the activists?

These types of funds are usually heavy on fees, and on some occasions the activists running them are far from perfect with regards to governance on their own funds.

Oh and I almost forgot, perhaps the greatest irony is that VGI Partners became popular many years ago for being activist investors themselves, being highly critical of other companies mainly as activist short sellers.

The VG1 ASX LIC has spent most of this year at a greater than 15% discount to its NTA. It charges performance fees of 15% of any positive portfolio performance, and its fixed fee is 1.5% p.a. Their performance since inception in late 2017 according to their latest NTA report for end of October was… 2.3% p.a.

I also wondering if there are any VGI Investment staff still left there as we speak, as they seem to be regularly walking out the door.
 

Perhaps some of the previous staff wondered whether the company still fulfills the IMA, given all these changes? Plus changes to the overall investment strategy it seems. I also note that turnover of the portfolio is dramatically different in the last year to how it used to be. A bit stiff for those that relied on the prospectus.
 

It gets even more awkward. VGI co-founder end one of the recent departures Doug Tynan mentioned above happened to start up his own shop and another former VGI staff member in Justin Hardwick is also involved. Their performance to Oct 31 I just looked up was wait for it… plus 36 % the previous 12 months, and overall, since the inception date not that long ago in July 2022 their fund is up 39%!

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