(Bloomberg) — As Boaz Weinstein’s hedge fund, Saba Capital Management, takes on one of the most high-profile environmental investment trusts in Britain, the standoff is morphing into a particularly brutal moment for ESG.
Saba made clear last month that it plans to oust the board of Impax Environmental Markets (IEM), after raising its stake to almost 30%. In so doing, it also took aim at Impax Asset Management, a juggernaut of sustainable investing that launched IEM in 2002 and has been running the portfolio ever since.
The next step will likely be to take the mandate from Impax, whose performance running the trust’s portfolio has been “terrible,” says James Carthew, head of investment companies research at QuotedData.
A spokesperson for Saba declined to comment. The company has previously said it intends to replace IEM’s board because the trust’s share price has lagged its benchmark by more than 75% over the past five years.
A representative for Impax said IEM’s investment case is currently “more compelling than ever before,” but declined to comment on the risk it might be removed as IEM’s investment manager.
Saba’s approach is part of a broader strategy to target UK investment trusts with share prices below the net asset value of the underlying assets. But its IEM campaign stands out, according to Carthew.
The hedge fund’s move “undermines” efforts to pursue sustainable strategies, “and removes that choice from the investors in the investment companies market,” he said.
“At its heart, this is a battle between short-term profiteers with deep pockets and long-term investors with lesser means,” Carthew said.
Losing the IEM mandate would mark a significant blow for Impax, which has long been viewed as a flag-bearer of the sustainable investing movement. But the asset manager has struggled to navigate rising interest rates in recent years, while largely missing out on the surge in Big Tech valuations. Against that backdrop, its market value has slumped by more than 90% since its 2021 heyday.
The asset manager’s chief executive, Ian Simm, told investors last year that the worst was over after clients pulled $14 billion. He said back then that he expected the firm’s assets under management to stabilize.
Then in early April of this year, Impax revealed net outflows of £2 billion ($2.7 billion) for the quarter ending March 31. The firm now manages about £22 billion in assets, down from a peak £41.4 billion in December 2021. That’s despite a roughly 70% rebound in clean energy stocks over the past year.
Before Saba’s intervention in April, Impax was overseeing about £925 million in total net assets for IEM. The investment trust now holds roughly £200 million, after shareholders sold their stakes in connection with the tender offer triggered by Saba’s activism.
Hawksmoor Investment Management was among IEM shareholders to offload its stake last month. Robert Fullerton, senior investment analyst at Hawksmoor, says the expectation now is that Saba will take the mandate from Impax and then seek to run IEM itself. “This is quite widely known” among market participants monitoring the situation, he said.
IEM’s board has acknowledged that Saba’s actions since April will give it “effective control” of the investment trust, with the power to influence its “strategy, objectives, and mandate.”
The spokesperson for Impax said the asset manager is still hoping to retain a “meaningful percentage” of IEM assets by offering investors the option to switch to an Impax UCITS fund.
If Saba takes the IEM investment mandate from Impax, it would follow a playbook established with its handling of Edinburgh Worldwide Investment Trust Plc., which is currently managed by Baillie Gifford & Co. Last month, the hedge fund pitched itself as the trust’s new investment manager after taking a controlling stake and ousting the board. It promised to take on the trust’s existing fee structure.
As of January, Saba had stakes in 46 UK-listed investment trusts, according to AJ Bell. That’s equivalent to about one in every six.
Carthew of QuotedData says the expectation now is that Saba will eventually merge Edinburgh Worldwide with IEM, as the hedge fund continues to target other UK trusts trading at a discount to NAV.
“They’ll have one larger vehicle and they can use it to buy stakes in other closed-end funds,” he said. “They’re going to start bidding for things.”
–With assistance from Leonard Kehnscherper.
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