Quill are pleased and proud to share that we have been shortlisted for the Headlinemoney Awards 2025 for both PR Agency of the Year, and our Account Manager Emma Taylor has been shortlisted for Rising Star PR Professional of the Year!

The Headlinemoney Awards celebrates the best in journalist, editorial excellence, and top-flight communications from the world of financial services media.

Thank you to all the wonderful financial journalists, past and present, who we’ve worked with over the years to bring our clients’ stories to print, these recognitions aren’t possible without their help.

When Saba Capital attempted to oust the boards of seven UK investment trusts, it highlighted that one of the reasons it did so was because of their widening discounts. This is not just an issue for individual investment trust companies, but for the sector.

Quill PR asked Peter Hewitt, fund manager of CT Global Managed Portfolio Trust, his thoughts on why discounts in the UK investment trust sector have widened over the past couple of years and what can be done to close them.

Peter Hewitt, Fund Manager of CT Global Managed Portfolio Trust, commented: “When it comes to investment trust discounts, I think we need to understand why it’s become such an issue. The UK economy hasn’t grown as fast as it could and, coupled with the rise in inflation and interest rates, there was an absence of buyers which did not supply demand for shares – so of course discounts for certain trusts were going to widen. In 2021, the average sector discount was at 2%, and over the last few years it increased to 16%. But there’s not a lot you can do to about this – it’s not easy to fight against important macro trends.

“However, the boards and management of investment trusts now have to be rigorous in closing the discount gap and issue share buybacks.  In the past, they have been reluctant to do so due to fears that it will drastically shrink the size of their trust, to the point that private wealth managers might not be interested in them if they are too small but if more investment trusts did this, yes, it may shrink and the investment trust sector may well be smaller, but they’ll keep shareholders happy and ensure that they have right rating and a better share price.

“The increase in AUM (Assets Under Management) targets for wealth managers has significantly reshaped the investment landscape. With the amount moving from £100m to around £500m, smaller investment trusts and niche funds often struggle to gain traction with larger wealth managers and institutional investors.

“In order for share buyback policies to make a difference, they would need to make sure that the quantum of the buybacks is materially different and not just one-offs. With this in place there would be a lot less discount volatility, which would arguably be more attractive for potential buyers such as private wealth managers and multi-asset funds.”

Perhaps in the fullness of time, we might thank Saba Capital for highlighting the widening discount in the UK investment trust sector. However, for now the boards of investment trust companies must look to closing the discount gap and ensure that their shareholders are happy.

Having put forward proposals to seven UK investment trusts during December 2024, Saba Capital called for a general meeting with each of the Boards to decide their fate. These investment trusts include: Herald Investment Trust, Baillie Gifford US, CQS Natural Resources Growth & Income, European Smaller Companies, Henderson Opportunities Trust, Keystone Positive Change and Edinburgh Worldwide.

Following Edinburgh Worldwide’s general meeting on Friday 14 February, all seven of the investment trusts have rejected Saba’s proposal to oust the current Board and replace them with Saba appointed directors in what has been considered a record voter turnout at each general meeting.

And now, the further announcement from Mind the Gap campaign of Saba’s intention to requisition the Boards of CQS Natural Resources, European Smaller Companies, Middlefield Canadian Income and Schroder UK Mid Cap to propose to transition each of these trusts into an open-ended structure to eliminate the discount.

This has been considered one of the biggest shake-ups in the UK investment trust sector.

Quill PR has asked the opinions of some of the leading investment trust managers and commentators: Ben Conway, Head of Fund Management & CIO of Hawksmoor Investment Management; Peter Walls, Fund Manager of Unicorn Asset Management; and Peter Hewitt, Fund Manager of CT Global Managed Portfolio, on why this happened and why it’s important.

Question 1: Do you think that UK investment trusts can learn from this, and is there a way to protect against such aggressive strategies?

Ben Conway, Head of Fund Management & CIO at Hawksmoor Investment Management commented: “Yes, there is plenty both Boards and investment advisers (managers) can learn from this. The best way to prevent activists like Saba from appearing on one’s register is to prevent the opportunity from appearing in the first place. Discounts, even on portfolios of liquid securities, had become too wide and too persistent. Boards should have been enacting more measures to narrow discounts. The most obvious of these are share buybacks – which should have been enacted sooner and in greater size. I would not look too kindly on any reactive initiatives designed to prevent activist shareholders from appearing on registers. Any changes should benefit all shareholders – and close discounts by increasing demand. Anything that attempts to exclude a certain type of investor from a register is not good governance. The analogy we like to use is the wasp. No one wants a wasp at their picnic, but without them, our ecosystem collapses. Activists are an essential part of a healthy investment trust ecosystem: they provide discipline.”

Peter Walls, Fund Manager of Unicorn Asset Management, said: “Saba’s ultimate strategy will only become clear towards the end of this saga but so far it looks like a hybrid model. Traditional activists and arbitrageurs look to buy as many shares as possible at the widest possible discount and then agitate for change. It’s been going on for decades, aided by the development of ever more sophisticated and liquid financial instruments.

“Of course, the best way to protect against such strategies is not to let your shares trade at a tantalising discount in the first place and to ensure that your shareholders remain loyal when times get tough. Neither of these tasks are always particularly easy as markets, investment styles and investor sentiment are all cyclical. And for Investment Companies with illiquid underlying investments the challenge is often greater (although the potential for arbitrage may be less).

“I’m not inclined to support the idea of introducing protections against certain large investors as that would go against the whole idea of shareholder democracy.”

Peter Hewitt, Fund Manager for CT Global Managed Portfolio, commented: “Firstly, I think it’s important to note that this was not an attempt by Saba Capital to help improve the trusts and help close the discount. This was more of an attempt to gain the management of these trusts. They had no support in this endeavour by anyone outside of their organisation as it was pretty clear that their proposal would benefit no one but Saba.

“To prevent this kind of action from happening in the future, investment trusts will need to close the discount gap. The Board of Directors and management must be more alert about their trust’s discount and be more rigorous in closing it. It is true that the discount in the investment trust sector has widened quite a bit, which formed the basis of Saba’s proposal. In 2021, the average sector discount was at 2% and now it is at 16%.”

Question 2: How do you think the investment trust industry will change?

Ben Conway, Head of Fund Management & CIO at Hawksmoor Investment Management commented: “ ‘Relevancy’ is the watchword for us. Is the trust relevant? Trusts that lack relevancy will not see demand for their shares return and thus the current crisis is existential for them. Ultimately, a Board needs to be sure that the trust is offering something that cannot be offered in other forms. The most obvious type of trust at risk is that which invests predominantly in liquid listed equities. Such a strategy can be replicated in daily dealing in open-ended fund form (offering greater liquidity to the investor without the discount volatility of trusts). The use of gearing is not sufficient to justify their existence. We believe the trust structure is best utilised to access less liquid securities – both smaller listed equities and assets such as property, infrastructure, ships and private equity to name a few.”

 Peter Walls, Fund Manager of Unicorn Asset Management, said: “The sector has faced so many headwinds in recent years (I think we are all familiar with these!) that change was already afoot as referenced by the record share buy-backs and other corporate actions seen in 2024. This trend has continued into 2025 with announcements of more rigid discount controls (Finsbury Growth & Income for example), redoubled share buy-back activity (Harbour Vest Global Private Equity) and other measures to dampen discount volatility.”

Peter Hewitt, Fund Manager for CT Global Managed Portfolio, commented: “The industry will have to cross the Rubicon and realise that their trust will become smaller if they want to close discounts and ensure their shareholders are happy. To do this, they will have to issue share buybacks.

“To make a difference to discounts, the quantum of the buybacks must be materially different and not just one-offs – you can make a difference on discounts through sensibly managed buyback policies. Not a lot of trusts want to do this because it will shrink the trust and they fear that private wealth will not be interested in them if they are too small. But what they have to realise is that it’s necessary if they want to keep their trust and get the right rating and share price.

“If this was taken onboard, you would have a smaller sector but there would be a lot less discount volatility, which would arguably be more attractive for potential buyers such as private wealth managers and multi-asset funds. Saba has thrown a light on this which we might be thankful for in the fullness of time.”

Question 3: Saba claimed that the UK investment sector is broken, do you think they’re correct in this?

Ben Conway, Head of Fund Management & CIO at Hawksmoor Investment Management commented: “I don’t think “broken” is the right word. I would say “in crisis” – but the challenges the sector faces aren’t insurmountable. Demand for investment trust shares is impaired as a result of three main headwinds: cost disclosure rules, wealth management consolidation and sub-standard governance. Whether the sector is in cyclical or structural decline is largely academic if the cycle takes too long to turn up! I think there is a deep pool of potential demand that should be marketed to with far greater alacrity (except for a few investment managers who I know are at the vanguard of such initiatives) – and that is the DC pension fund industry. The trust structure is in many ways superior to the LTAF in accessing illiquid assets. It would be a shame if DC pension funds invested only in LTAFs to access such assets. Even then, LTAFs could and perhaps should invest in investment trusts. Either way, demand from traditional cohorts of investors has collapsed and will not return soon. If it is not replaced, the supply side will have to do the work, and that means shrinkage.”

Peter Walls, Fund Manager of Unicorn Asset Management, said: “Absolutely not. Leaving aside that the sector has stood the test of time through every possible conceivable scenario the Investment Company structure remains that most appropriate corporate entity for long term investment, particularly in less liquid specialist areas of investment. Those willing to take a truly long view have been well rewarded by investing in the sector and I have every confidence that will continue to be the case.”

Peter Hewitt, Fund Manager for CT Global Managed Portfolio, commented: “I think that it is obvious as to why Saba would think that. Inflation and interest rates were rising and there was an absence of buyers, which could not supply demand for shares, so of course discounts for certain trusts were going to widen. But there’s not a lot you can do to combat this, it’s not easy to fight against pretty important macro trends. However, I wouldn’t say that the UK investment sector is broken, but it could improve in some areas.

“Aside from closing the gaps on discounts through continuous share buyback options, I think that Boards need a better understanding of the investment trust structure. Because investment portfolios invest in a whole variety of areas, such as equities, bonds, commodities etc. they are all wrapped up and called investment trusts. Whilst the Boards of investment trusts want to do the right thing generally, they often have expertise in many different investment areas but lack expertise in the management of the investment trust structure. Expertise in this area is paramount as they would be able to make more effective decisions to run the investment trust, such as the use of marketing strategies and how to handle discounts.”

Question 4: AIC has launched its  ‘My Share, My Vote’ which seeks to end poor practices among some investment platforms and providers, such as failing to pass on voting rights and information, charging customers to vote, and declining to vote shares even when requested to do so.  Do you agree with the AIC ‘s solutions and that it should be mandatory for platforms to notify investors about voting rights unless they opt out?  Also, should this become part of Consumer Duty?

Ben Conway, Head of Fund Management & CIO at Hawksmoor Investment Management commented: “I am fully supportive of the AIC’s campaign here. It should absolutely be part of Consumer Duty that platforms play a greater role in enabling shareholder engagement. In fairness to some retail platforms, their business models enable very low-cost custody and trading of investment trust shares. We should not necessarily expect costs to stay as low if more demands are made on them. It is not just retail platforms to blame. Some institutional platforms simply charge far too much to enable voting and it would be healthy if a light was shone on pricing practices there.”

Peter Walls, Fund Manager of Unicorn Asset Management, said: “All in favour of all shareholder voices being heard but not so keen on mandating. Following the unbelievable damage wrought by the cost disclosure fiasco over the last 5 years I strongly believe that Investment Companies should continue to abide solely by the existing rigorous listed company rules and there is no justification for becoming embroiled in Consumer Duty legislation.”

Peter Hewitt, Fund Manager for CT Global Managed Portfolio, commented: “Yes, it should most definitely be mandatory. Shareholder voting rights are incredibly important when it comes to running a trust, they can decide the future of it, as we have seen from the voting results of Saba’s proposals. From my experience, Interactive Investor is one of the best at this. When it comes to your voting rights, they contact you immediately when a vote is about to take place and provide all the necessary details. The importance of voting rights cannot be overstated.”

It seems that the investment trust sector is united in its response to Saba’s campaign against the UK investment trust industry and on ways to improve the sector that does not include ousting the Board of several respectable investment trusts.

It will be interesting to see how Saba fares in its Mind the Gap campaign. But what is clear to see is that Saba Capital is here to stay in the near future.

McKinley Sadler is a Senior Account Executive at Quill PR.

It all started in 2012 with Shinzo Abe’s economic legacy, coined Abenomics. The first two arrows – monetary policy and increased government spending, were quick to implement while early signs of the third – economic structural reform – were starting to emerge. At AVI, it seemed the right time to seize the opportunity in Japan.

By the beginning of 2019 it was evident that the Corporate Governance Code was having a marked impact on the behaviour of companies and shareholders in Japan. Attitudes towards balance sheet efficiency, operating efficiency and shareholder returns were shifting. We began to see an increase in the quantum and success of shareholder activism. During the 2019 AGM season, a record 54 companies received shareholder proposals, 28% more than the previous year.

Private Equity joins the Party

This new shareholder activism in Japan came to the attention of private equity funds and by the end of 2019 large global private equity players were showing their enthusiasm for Japan. For some time, they had been aware of Japan’s abundance of excess balance sheet cash, potential for margin improvement, and cheap financing; however, the changing corporate governance environment was prompting renewed interest. KKR, Apollo, Blackstone, Bain, Carlyle and Permira had offices or were quickly opening offices in Japan.

This trend was encouraging especially as the type of companies AJOT held were ripe for acquisition. Companies with no debt, copious excess cash and consistent free cash flow generation. AJOT benefitted from its first takeover transaction when Nitto FC was taken private at a +38% premium by a private equity firm.

The Unexpected: COVID-19

The outbreak of COVID-19 and the related lockdowns led to a broad sell-off in global assets. There were few safe havens, and although Japan experienced a lower infection rate than Western countries, Japanese equities suffered, nonetheless. The severe economic shock from an unforeseen event like COVID-19 highlights the advantages of investing in resilient companies with solid balance sheets. While in the short-term factors might weigh on performance, we were confident that our companies were well positioned for a recovery.

The second quarter of 2020 saw a strong recovery in equity markets, as fears of a prolonged shutdown from the COVID-19 outbreak receded. However, 2020 was not an easy year for our strategy as it stifled our engagement activity and portfolio companies took a more cautious stance on reform. We proceeded, despite restrictions on travel, with our public campaign on Fujitec, a global manufacturer of elevators and escalators. We launched a website highlighting a multitude of issues ranging from low margins, poor shareholder returns to manufacturing inefficiencies.

Governmental and Regulatory Bodies on Side

Throughout this period the message from the governmental and regulatory bodies was clear – they will keep ratcheting up guidelines and regulation to ensure reform continues. The Financial Service Agency, METI (Ministry of Economy, Trade and Industry) and the TSE (Tokyo Stock Exchange) were seemingly aligned on supporting corporate reform and shareholder engagement. This pressure from

the government and regulatory bodies continued when the TSE announced that shares held by domestic banks and insurance companies would be excluded from its free float calculation. This was a direct attack on Japan’s allegiant shareholder problem and created more opportunity to engage with some of our portfolio companies on unwinding cross-shareholdings.

In 2020 PM Shinzo Abe resigned due to ill health, but his successors, Yoshihide Suga then Fumio Kishida in 2021, continued Abe’s reform agenda. The corporate reform arrow had already been launched and changes in politicians would not deter it.

By 2021 an updated Corporate Governance Code was released. The most salient points were the ones focused on independent directors with pertinent skills and the requirement for listed subsidiaries to oversee conflicts of interest. This scrutiny on listed subsidiaries was positive for AJOT as we had exposure to six listed subsidiaries at that time.

In 2023, the TSE followed through on their announcement calling on companies to address low valuations. This was mostly aimed at the 1,800 companies in Japan that trade on a price-to-book ratio of less than 1x. It was an encouraging step, highlighting that regulators are continuing to use their powers to promote reform. Then later in the year METI published its “Guidelines for Corporate Takeover”. The guidelines contained encouraging wording and we made our first tender offer to a portfolio company, seeking to take a minority stake. The option of putting forward tender offers won’t be an appropriate strategy for all our holdings, but we believe the environment has evolved in such a way that unsolicited tenders can now become a valuable tool to add to our engagement repertoire.

Engagement Campaigns

Looking back over the past five years, we launched 10 public campaigns and numerous more private engagement campaigns. We submitted 14 shareholder proposals, created 10 campaign webpages, wrote over 100 letters to managements and Boards and held nearly  500 meetings. The responses have for the most part been accepting, and increasingly so with companies becoming more aware of their responsibilities to shareholders.

The Carrot or the Stick

Although most of our engagement was private, our public campaigns helped to add pressure to both the companies being targeted and our other portfolio companies.  Overall, our public campaigns – which some might perceive as aggressive in their demands – have enabled us to deepen the relationship with our portfolio companies. We believe by focusing on a whole suite of issues, not just capital efficiency, and basing our arguments on the principles of the Corporate Governance Code, it has been harder for management to push back against our suggestions. The intent of our campaigns was to raise awareness of issues weighing on the share price, force management to discuss them, and encourage other shareholders to pressure management to rectify them.

The Macro Environment

We are optimistic about the macro environment in Japan. The weak Yen makes Japan highly cost-competitive, both for tourism and manufacturing.  Inflation has continued to creep higher having returned after a 30-year absence and with wage growth and increased spending, we see a more rational allocation of capital and improved productivity. This bodes well for the companies we invest in.  The Bank of Japan (BOJ) expansionary monetary policy over the past five years has weighed heavily on the Yen, which on an effective real exchange rate basis is at the cheapest since the early 70s. Even a small adjustment in monetary policy could lead to a stronger Yen. This could be a driver for attractive absolute returns.

Case Study: Challenges

SK Kaken, a manufacturer of construction coating paints, has been in the portfolio since inception, generating a return on investment of -23% with an IRR of -6%. Our proactive engagement with SK Kaken management has broadly focused on capital allocation and liquidity enhancement, corporate governance, and shareholder communications. AVI has consecutively submitted shareholder proposals at the three most recent AGMs. At the latest AGM, we sought to return the excess cash being hoarded on the balance sheet back to shareholders via dividends as well as the cancellation of treasury shares. We achieved majority support from minority shareholders; however, the resolutions were not passed due to the founding families significant ownership stake. 

More positively, despite the founding Fujii Family holding more than 40% of the votes, management recently completed a 5-for-1 stock split, have reduced director tenure, transitioned to a company with an audit & supervisory committee, increased board independence, and improved disclosure of ESG performance and quarterly results. Although we are pleased that management have implemented some of our suggestions, there is a long way to go with SK Kaken still trading on a derisory EV/EBIT multiple of 0.3x, compared to its peer group average of 8.4x. 

Case Study: Successes

Fujitec, an elevator installation and maintenance company, was a near five year holding since inception in October 2018, generating a return on investment of +111% and an IRR of +32%. We engaged extensively with Fujitec management on several areas, including operational improvements, capital allocation, corporate governance, and shareholder communications.

In early 2020, having been a shareholder for more than a year and having received a lacklustre response from management to the three letters we had sent thus far, our engagement turned public as we launched the AVI campaign website ‘Taking Fujitec to the next level’. This prompted a more pragmatic response from management, as Fujitec announced its future strategic direction plan and later revised its Vision24 min-term plan after AVI threatened another public presentation and accompanying press release.

Overall, despite early resistance, management responded positively to our suggestions, announcing a share buyback program, reorganising the board to be majority independent, and providing full English translation of results. As a result, Fujitec’s EV/EBIT valuation multiple increased from 6x to 20x over our investment period. 

Summary

A famous Japanese proverb is an apt one, “fall seven times and stand up eight”. We can write numerous letters and presentations to management and boards of companies before receiving a positive response, but perseverance pays off. The environment has become more supportive for our approach, and we remain convinced that our strategy is effective.  The opportunity in our portfolio to outperform is impressive and we see the developments over the past five years as a strong tailwind to propel us forward.

This article was written by AVI Japan Opportunity Trust (AJOT)

Header image courtesy Kaichieh Chan via Pexels.com

^{courtesy of Markus Spiske on Pexels}

In a historic turn of events, the 28th Conference of the Parties (COP) concluded with a groundbreaking agreement to “transition away from fossil fuels.” This marks the first time such an explicit commitment has been incorporated into the final agreement at a COP. However, despite this unprecedented move, some nations advocated for more robust commitments, raising concerns about potential loopholes in the finalised language.

The decisive statement read: “Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science.”

In addition to the overarching agreement, several world leaders pledged commitments designed to accelerate progress toward achieving the 1.5°C target established during the 2015 COP21, also known as the Paris Agreement.

This landmark accord, signed by 196 parties, aims to restrict the rise in global average temperature to 1.5°C above pre-industrial levels by the end of the century. Notable commitments from COP28 include:  
Renewable Energy Surge: 130 nations pledged to triple global installed renewable energy generation capacity to at least 11,000 GW by 2030. Concurrently, they committed to doubling the annual rate of energy efficiency improvements from 2% to 4% each year until 2030.

Cooling Emission Reduction: 67 nations vowed to collaboratively reduce cooling-related emissions across all sectors by at least 68% relative to 2022 levels by 2050.

Nuclear Energy Expansion: 22 nations signed the Declaration to Triple Nuclear Energy, aiming to triple global capacity by 2050.

Oil & Gas Industry Commitment: 50 fossil fuel producers endorsed the Oil & Gas Decarbonisation Charter, voluntarily agreeing to cease flaring excess gas by 2030 and eliminate leaks of methane, a potent greenhouse gas.

Sustainable Agriculture and Food Systems: 153 nations committed to the Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Action, recognising the need to address the impact of food production and land-use changes on carbon emissions.

Despite these additional pledges, the International Energy Agency (IEA) tempered optimism by calculating that the full implementation of COP28 measures would merely narrow the emissions gap related to energy consumption by one third by 2030, in comparison to the existing trajectory towards a 1.5°C scenario. The Financial Times quoted Fatih Birol, CEO of the IEA as saying: “It is good, but it is not good enough.”
 
While global progress continues towards decarbonisation and a shift away from fossil fuels, meeting legally binding targets necessitates significant strides forward and bold policy developments that have yet to materialise. The challenge ahead lies in turning commitments into concrete action to ensure a sustainable and climate-resilient future for generations to come.

Max Gilbert is an investment director at Gravis.

Header image: courtesy of Pixabay on Pexels