For a few unfortunate investment trust boards, Saba was the Grinch that stole Christmas of 2024. But, if they’d hoped that it was a passing challenge, events since will have left them sadly mistaken.

The saga has persisted for more than a year. Whilst boards and their investment trusts have not sat still, activist threats remain and further challenges arising from investor demographic shifts continue to mount.

Below, we explore what boards of the initial Saba targets (‘the Saba 7’) learnt from their initial threat exposure, and what they should consider to traverse the hurdles ahead.

The Visibility Gap

Our review (in-post) of the trusts revealed a consistent pattern: boards with low public visibility – limited LinkedIn activity, minimal proactive media engagement, and absent or outdated standalone websites – were generally less well prepared when activist pressure emerged.

Of course, having effective and efficient storytelling channels in place is unlikely to have prevented the Saba challenge itself. Rather, we believe the lack of greater preparedness meant tackling the challenge once established became harder– and would have been harder still had Saba opted to pick off individual trusts, as it is doing now.

Of the Saba 7, most had no LinkedIn presence in the period preceding the requisition, with little digital evidence of targeted engagement from board members to relevant stakeholders. Trusts largely communicated through RNS announcements, with scarce use of other public channels. When activist scrutiny intensified, these boards lacked official means through which to communicate with the broad investor base.

Most board members at the time of the requisition were found to have established channels on LinkedIn. However, posts about their respective trusts were minimal – only to be ramped up ahead of the requisitioned meetings.

The Cost of Reactive Governance

These requisition processes did not come cheap, and we think it is reasonable to suggest that such costs were heightened by the lack of a comprehensive, pre-existing route to communicating with shareholders.

Four of the seven trusts recorded cumulative additional expenses of £2.58 million in their subsequent annual reports, accrued in relation specifically to those single requisitioned meetings. The others have either not disclosed their fees or instead reported fees in combination with other related costs.

These are not insignificant figures, and fees accrued at shareholders’ expense – something we know board members, with their focus on shareholders’ interests, are acutely aware of.

Prevention is better than cure, but a cure is still preferable to emergency surgery. And cheaper, too.

The Retail Challenge

Investment trusts are operating in an increasingly challenging environment. Their traditional investor base is ageing, while younger generations are gravitating towards alternative investment products and have markedly different expectations regarding communication and engagement. At the same time, the sector continues to face persistent structural pressures: ongoing discounts, consolidation among wealth managers, and growing competition from a broader universe of investment products.

Private investors are central to the sector* – accounting for over a third of total shareholdings by value – and their influence is increasing as retail participation rises across UK markets. And yet, there is still a limited understanding among many retail investors of what an investment trust is, how it works, and what exactly the role of the board is. This has created both a vulnerability and an opportunity: a need to prepare for expert activists among an increasingly ill-informed investor base, but also a chance to more effectively engage brand new audiences.

The average investment trust shareholder is 60–65 years old** but, as wealth shifts, this profile will change. The typical future investor will be digitally native and motivated by values – an audience that currently favours other vehicles like ETFs. Lacking the longstanding loyalty of the old guard, they might also be more likely to sympathise with an activist’s calls for change – making critical the need for board independence if they are to avoid being swept away in a coup.

In a landscape defined by demographic change, increasing retail influence, evolving expectations, and heightened activist pressure, boards must ensure they are not only fulfilling their duties but are visibly doing so.

*https://www.warhorsepartners.com/insights
**https://www.theaic.co.uk/aic/news/press-releases/private-investor-sentiment-towards-investment-trusts-improves

Building Board Preparedness

For investment trusts, boards serve as the embodiment of shareholders’ interests. They are their independent, accountable representatives, and the experts entrusted with governance and critical oversight.

We believe there is a significant opportunity for boards to raise their voice and be more proactive by building their platform to communicate to shareholders. Modern challenges require modern solutions, and the demands of an increasingly critical retail investor base have to be met – particularly in the face of activist threats.

The successful transmission of board messages greases the wheels of action. It can allow them to better hold investment managers to account and allow for more productive engagement with activists – particularly when those activists are supported by a broader group of shareholders. In getting these messages across, digital methods in particular are currently underutilised.

Independent of investment managers, board members should build their own digital profiles – both individually and at the trust-level. Personalisation is a route to ownership of accountability: a counter to criticism levelled at investment trust by Saba and others. Our research suggests that LinkedIn is one platform in particular where boards can be doing more, alongside use of video content, independent websites, and targeted engagement with the press.

In combination with other forms of shareholder engagement, such as proxy solicitation, it is a route to a more comprehensive communications strategy: traversing the width of the shareholder map and meeting the needs of the full breadth of shareholders, big and small.

Raising Their Voice

Since Saba’s original challenge, boards have come a long way. It was a wake-up call, and one that many have answered. As we have seen in recent weeks and months, they’re fighting back. But this is a challenge – both in responding to activists and in adjusting to an increasingly retail-led investor base – that is going nowhere.

Boards need a voice: one that is independent of investment managers, loud enough to reach retail investors, and clear and distinct in its delivery. This is not an exercise in vanity. Building a communications platform is a route to more effective positioning and protection. It means reaching the full breadth of shareholders in decision-making moments; being prepared for the current and future challenges that are shaping the sector; and driving cost-savings in contentious situations, to all shareholders’ benefit.

Only with such a voice can boards be confident in their position in the moments that matter.

For more information, please visit nepean.co.uk or email info@nepean.co.uk