Watchdog Under Fire for Investor Protection Failures

The Financial Conduct Authority (FCA) is under severe scrutiny for its perceived failure to protect small shareholders in investment trusts from aggressive predatory investors, often termed 'carpetbaggers.' Leading industry figures have publicly criticized the FCA, characterizing its approach as naive and lacking a crucial understanding of the financial risks at play. Glen Suarez, chair of Impax Environmental Markets, and Jonathan Simpson-Dent, chair of Edinburgh Worldwide fund, have called upon the regulator to intervene against entities exploiting regulatory gaps.

Boaz Weinstein of Saba Capital, a US hedge fund, has been repeatedly targeting these investment trusts, aiming to gain control against the majority shareholder wishes. Despite facing rejections, Weinstein persists in his attempts to install his own directors. The FCA has initiated a review of existing rules, prompted by Saba's actions, but initial indications from an FCA market head suggest a reluctance to intervene directly. This stance has been met with disbelief, as trusts argue that proposed defensive measures like amending articles of association are prohibitively costly and impractical due to shareholder voting requirements.

In response to the ongoing threats, both Edinburgh Worldwide and Impax have launched exit tender offers. These offers aim to provide an avenue for shareholders who wish to exit their investment at a price close to the net asset value, mitigating the risk of being stranded in a fund potentially controlled by Saba. Shareholders are urged to vote on these offers before their respective deadlines: April 14 for Impax (with some platforms closing as early as April 10) and April 8 for Edinburgh Worldwide. The Association of Investment Companies has expressed concern over the potential loss of these trusts from the London market, emphasizing the detrimental impact on the UK's financial sector.

The FCA has stated its hope for continued high voter turnout and reminded boards of their legal powers to act if outcomes are not in shareholders' best interests. The regulator also confirmed its review is intended to ensure minority shareholders receive adequate protections.