The Financial Conduct Authority (FCA) is moving to reform the regulatory framework governing investment trusts, aiming to curb hostile attempts by activist investors to take control of fund management. The proposed changes seek to prevent situations where investors with conflicting interests, such as Boaz Weinstein’s Saba Capital, attempt to replace established asset managers by electing their own directors to boards.

This regulatory reconsideration comes as Baillie Gifford’s US Growth Trust faces a potential challenge from Saba Capital ahead of a critical shareholder vote scheduled within the next three weeks. Since its inception in 2018, the trust has delivered an annualized total return of 16.7%, offering UK investors exposure to high-growth American technology companies, including AI-focused firms Anthropic, OpenAI, and SpaceX.

Despite its strong performance, the trust is now at risk of significant shareholder disruption. Saba Capital holds a 29.5% stake, and its affiliate, Sessa Capital, controls an additional 5%, collectively positioning them to influence the vote substantially. Although regulators have consulted the Takeover Panel, there is currently no indication that Saba and Sessa are coordinating their actions, which would constitute a violation of City of London rules.

Baillie Gifford is actively encouraging support from larger institutional investors, including broker and asset manager Rathbones, to bolster opposition against Saba’s proposed board changes. However, mobilizing voting participation among private investors remains a considerable challenge, as they comprise about one-third of the register. The trust is urging retail shareholders to engage promptly in the voting process to safeguard the current management structure.

Industry observers note that investment platforms servicing retail clients, such as AJ Bell, play a crucial role in facilitating shareholder voting and are being called upon to support timely and informed participation.

The FCA’s proposed reforms aim to mitigate governance conflicts that arise when activist investors with competing interests seek to influence investment trust management, a move that may have wider implications for the asset management sector. However, some market participants argue these changes may arrive after high-profile cases like the US Growth Trust’s challenge, raising questions about the timing and efficacy of the proposed regulatory adjustments.