You might have known boas Weinstein back in the day for taking on the JP Morgan London whale, And of course he's been known for many many years out of the credit world because of course he invests in very complicated credit assets. But more recently he's been known as an activist investor. You have been most recently after for a while targeting a series of clothes down funds, very let's say, aggressively going after Black Rock. There have been lawsuits,
and of course proxy battles. Were actually in the center of a proxy battle right now with certain funds actually have already been voted on over the last couple of weeks. What we don't know and what is a very important thing. You've been very vocal on Twitter usually on how these battles are going. You've been pretty quiet. How have the meetings gone? Have you won anything?
So it's always nice to aspire to break news.
On at a conference like this, and it so happens that the fund that has gotten the most most of my.
Attention, which is called big Z.
BIGZ, just had the voting closed at eleven o'clock. So I can say preliminarily I didn't count the votes, but they've announced it that actually all the Sauba nominees there were seven got more votes than all of the Blackrock nominees, and four of our nominees got more than two times as many votes as black Rock, so more than two to one. And when you win an election by two to one, the voters have spoken. You know, we all know landslide is like sixty forty fifty eight to forty two.
If more than two thirds voted one way, you know, Blackrock can no longer say and that they purport to speak for the shareholder and try to create some divisions. The shareholder is spoken, we won, and what we The reason that there's been litigation, it's been outward. It's us to them is because they have put in place election rules that would make Vladimir Putin blush.
So let's step back, big step back. This is one fund you said you will voting for today, but they're ten funds. Ultimately, what is it that you want want out of this strategy? These are closed in funds, so you're locking up or Blackrock has locked up capital for a longer period of time forever right in many of these funds. So what is it that you're trying to accomplish by targeting them. I understand that you target them when they're trading below their net asset value. You want
them to bring investors whole. But what's the endgame here? You won at one fund, what else do you want?
Yeah?
So ETFs, as we all know, can be sold in net acid value, or the market maker can redeem them for net asset value, and then the manager Blackrock will go instell the assets and give back net asset value. Closed in funds, you're trapped. Many of these funds have no maturity. They could be around for one hundred years, two hundred years, and so there are periods where the investors don't want them. And for some reason, there isn't a manager more than Blackrock that the investors don't want.
It's something personal. I'm not looking to not be besties with Larry Fink. I'm not looking to be besties with Larry Fink.
You know.
I basically am just looking to make my investors money.
And if the discounts are persons, and they're there year after year, and you can buy it a literal dollar for eighty five cents, you have the power, unlike in normal activism, to turn that back into a dollar, because if you change the fund structure to being an open fund like an ETF or a mutual fund, or the manager agrees to buy back shares a net asset value, just like Franklin Templeton did this month in three energy funds, the investor has a chance to go from eighty five
to one hundred. And as you all know, that's not even just fifteen percent, because it's fifteen over eighty five.
That's an eighteen percent return.
Big Z today is at greater than a fifteen percent discount, and it's a fund that lit its investors' money on fire. Now I say that it sounds dramatic. The last three years we've been in more or lessible market, not for everything, but Big Z has lost more than fifty percent of its capital from the stock prices going down and from the discounts going up, and so it's lost billions of dollars. And here we have investors resoundingly saying we want change at the board level. But the part that many of
you would be shocked to hear. Why I mentioned that quip about Putin is that they've decided to set election rules such that in order to replace their board, you have to actually get fifty percent of all the shares now in big z preliminarily they got about fifty one to vote, so we would have needed fifty out of fifty one. Okay, winning thirty five to fifteen wasn't good enough, and so that kind of math makes it literally impossible.
But ironically it makes it impossible for them to put anyone else on the board because they would have to go through their own arcane rules. And so as a result to the black Rock nominees each sit on approximately seventy boards, seventy different boards. How can they do their job at seventy boards At JP Morgan, each nominee sits on one board. It's horrific governance from a firm that's an incredible firm that actually prides itself in raising money to invest in good governance.
Now, I think importantly, as we've mentioned, this is one fund that you know the outcome far. Yes, it's a big fund for you to be investing in a large discount, But what about the rest of them? If you were to be on course to lose, how would you react? Right? Know anything about those votes?
Right?
So I can't announce what's going to happen for the other big funds. Big Z is something like a billion seven. It's really large, and that's also why this has captivated the media's attention and also individual investors. There's a lot of money at stake. Going to NAV just a few weeks ago was worth one point four billion dollars to mostly mom and pop investors and to our investors who.
Include mom and pop.
We manage money in these very strategies for three different state pensions millions of pensioneers. So the results are in limbo even if we win, because it depends what the
judge says. We've taken them to court this year for this election, this election scheme, and last year we did it for a different election scheme, and we won in summary judgment against Blackrock against Neuveen, and I have a lot of respect for our former our panelist from the last session from New Veene, but it's Blackrock, to be fair, is not the only one, but they are by far
the worst. And it's those legal victories that have helped us in order to get good results with other managers who don't want to be on the wrong side of the law.
And so that's why this year.
I was very proud that we won Institutional Investor Activist of the Year back to back years and no closed in fund activist has ever won it before, and we were voted the best activists according to Institutional You're.
No longer just a closed end fund activist. You're also a close and fund manager, given that you've taken over some funds and those funds are actually not trading at asset value. So how then do you turn around and attack black Rock when your own funds are trading at a discount.
So firstly, there's two measures. Let's say there's how they performed. How much money did investors make or lose? In not you mentioned there's a lot of Blackrock funds where we went after There are ten, nine of them the last three years have lost investors money. Nine out of ten. Think about the market we're in, where the SMP is, even where the Russell is. Nine out of ten are in the red our fund that we've been managing for
two and a half years. That fund has actually made quite a bit of money, and in twenty twenty two, the first year we managed it, it was ranked number one out of two hundred and fifty seven funds. Who's in where the motive was income income based funds, and we were We came in first. So Blackrock can say, well, their fund trades at a discount too. But what they leave aside, this is the rub sonali, is that we when we took it over, said to the investors, if you want to get out at any V or close
to any V, we will let you. We conducted a tender and then there was there were more people that wanted to get out, kind of like you know, looking at it from capturing that discount, and we did a second tender, so we let investors out of forty five percent. Forty five percent of the capital exited and we let them out of anyv Blackrock is not willing to do anything like that.
One critique I've heard you make is the idea of lowering fees here to attract more investment. But for these funds, they tend to run at higher fees in the ETF structure. Would you consider lowering fees for your own funds?
Right?
So, our fund that we took over in January, the tickers SABA, is one of the lowest fee funds in the marketplace. It only charges seventy five basis points. The other funds is more normal. It charges around right around one percent, but it's also you get what you pay for, you know. I think most investors appreciate that if the fund is going to do interesting things. You mentioned Preditor of Wizardry or whatever you said in the beginning, and
we are doing really neat things in those funds. We're not just putting together a long portfolio and letting it sit. And so I think our fees are actually very modest. It's not for me to say, it's for the investors to say, when you look at.
What you're getting now, I want to read you Blackrock statement, because of course they have fought back. They have not let you jes attize their funds. They said that Blackrock and the funds boards remained focused on delivering value for all shareholders through concrete actions such as increased distributions and discount management programs. SABA is an activist hedge fund looking to arbitrage funds to capture quick profits. This attack is
not about government's performance or discounts. It is about executing saba's well known playbook buying can, rolling positions, and forcing short term changes that harm retail investors to benefit SABA and at touch fund investors. What is your response to that and what what do you do after these campaigns?
Yeah, you know, when I sit here and think, throw your best at me, Shali, Like they send you a question, just please, like give me your toughest question. There's no, there's no, we're not We're not. I'm not here to be to be, we don't have some friendly arrangement. Ask me anything you want. I fear none of their questions
because they're so absurd. Okay, when they say that we're using some purported playbook to help investors in the short term, where is the long term pain of making investors money? Usually when you say you have a short term motive, there's a long term consequence having the funds, have investors have a chance to get out.
At full value. Where is where is the negative in that?
And I'm not going to use my words, Okay, I assess which is independent?
Okay?
Which stands to tell the small investor how they should view this kind of rough contest that you know that that we're having. Here's what ISS said about this year. Okay, the board is deeply entrenched. A direct intervention remains necessary. It is rare to witness a board so brazenly flout the most basic of shareholder rights in furtherance of their own enrichment.
I'll read one more.
The board actions are so grave that they would warrant adverse vote for incumbents in an uncontested election. What Isss said is that even if we didn't run against Blackrock, they would have recommended against their nominees. That is literally how bad it is. And I want to just say, BlackRock's an amazing firm. They managed ten and a half trillion dollars by last account. This might be big to us,
This might be very big to our investors. This is tiny, small potatoes, and it will someday be a case study at HBS of a strategy failure that for five billion dollars of action of buying back funds at a discount, including their own employees who would get to make that money, including their shareholders, that they would say, look, we actually care about you. We're going to treat you the way other managers are treating their shareholders.
They wouldn't have this problem on their hands.
They have amazing but for closed end funds, they basically have taken the position no one is going to tell us what to do, and we're willing to do whatever it takes to squash share the rights of the shareholder, which is enshrined in the forty Act. The forty Act is there, the nineteen forty Act, the Investment Company Act is there to protect small investors. They don't need the same protections in ETFs because you can vote with your feet, you can redeem a mutual fund, you can sell an
ETF at a ne EV. But they are violating the Investment Company Act. Don't trust my words. A judge said it last year and we won our case.
What is your endgame here, because in addition to yes, they did support you on the director push, but they did not support you iss that is to terminate black Rock as the investment advisor. Is your ultimate end game to take over these funds.
So we've been in this is not my first rodeo. We've been in about I don't know eighty campaigns, and across eighty campaigns, only two times did the end result come that we took it over. In the first case, actually the manager resigned. They said we'll stay on as manager until you can find a new manager. So we don't come into it with that goal. We come into it with the goal of making our investors' money, and it turns out all shareholders get to make the same
amount of money. They don't have to pay the legal fees that we're paying. And by the way, Blackrock has sent tons of mailers. You saw the chiron and you saw the graphic SABA is trying to destroy your fund. That mailer went out four or five times. Robo calls on and on. I actually receive them because I'm a personal shareholder. I receive these these robo calls and these mailers. And what's amazing in the case of Big Z is
the only one I can talk about. They only got one out of seven shareholders to.
Vote for them.
I mean, it's just it's just incredible. That's despite the So what is my end goal? My end goal is to turn these funds back to an ev and make everyone a billion three not because I'm some sort of management McKinsey wizard, because NAV is a billion three away.
Has this gotten personal?
I mean I definitely, you know, I definitely a feeling it on the stage right, But no, it's really you know what it is. I have a pet, my pet, Peeve, is this is going to sound a little corny. Is injustice? Okay, it's everyone has their own. It's it's abusive. And and so I just, having been doing this, having been in eighty campaigns before, I just haven't seen it. We actually decided this past year and year two of this craziness to launch a fund dedicated to the closed in funds
of a single manager. Okay, we didn't say we're going to pick black Rock. We looked at the attributes. What are the funds that are at the biggest discounts, What are the funds that have the worst governance? I should say those two funds you mentioned that we run, we put in place the best governance.
ISS agrees.
We put in place governance where you count the number of votes, not the number of whatever that you know. I don't even know how to describe the You know that you need half of all the shares to be voted in your favor, even if half don't even show up. So all of those things annual elections instead of staggered elections. It is it is only personal in the sense that it is it to me violates. We're so lucky in
this business. The amount of money that managers management firms make they have ten and a half trillion dollars to do this because they want.
To trap capital.
They're basically blinded by this being long term capital that cannot be redeemed and they want to hold on to it. And so it to me, it's it's like a very noble fight. And we've received you can just look on Twitter, hundreds and hundreds of positive comments and basically not one negative comment. So I do enjoy the retail coming along for the ride.
Yes, in that sense, it's personal.
So also to be clear, this is an investment strategy. This is a strategy that is meant to return money to shareholders. It's not just on concept. How profitable is it and how big of a strategy has it become. Has SABA really pivoted from becoming a tail fund to an activist fund?
Well, give me a tail event and I'll be I'll be a tail fund manager again. But we've had what have we had like forty straight days of the S and P not going down even three quarters of a percent? I am it is a It is a big business for us. We own six billion of closed end funds, a full third of them or just this single manager black Rock and and many of them we think have good governance, they just are at discounts. We don't have
a governance issue. So it's it's it is quite a big business for us, and I can't really on this stage speak to the returns. But we have an ETF, for example, the ticker is CEFS. It's been around for more than seven years, and people can plug in how that did versus the three other ETFs that own closed in funds. It's done, It's done very well.
How well?
All right?
Well, if someone were to plug it into Bloomberg and they put CFS and then they put the invesco version or the first trust version, I think for the last three years, and it's held a lot of it, it's been in fixed income, which is you know, had a tough time. Those other funds have made between zero and two percent and we've made ten percent.
So let's broaden out here again, because you know, people have looked at you for credit markets for a long time. When we talk about the closed un funds strategy, there's a deeper question. It's not really just about closed on funds. There's a whole push by the private acset industry to push into retail, to push into interval funds to find new strategies to bring money in. Are all of those funds vulnerable to activists?
So by the laws of depending on the structure, some are, some are not. You know, in the interval fund you generally you only have the right to redeem five percent, so you're getting five percent back per quarter, but you can't. They also invest generally in deeply liquid assets, so you couldn't just sell Microsoft or IBM and raise the cash.
So it is interesting for me as having been in credit at the forefront of all the innovation that came after nineteen ninety eight, with with credit derivatives and synthetic securitization and all of this sort of stuff. And back then retail investors were redeemed.
Unsuitable to own these things.
You couldn't own high yields really if you were not a qualified investor. And now whether it's Colo tranches, you know, alphabet soup, and so this has been an amazing boom for the largest asset managers, the amazing managers like in Aries or Apollo that can bring these products their reputations and good governance, I should say, because we also see a lot of good governance JP Morgan has great governance on their closed in funds.
And we see that. You know, there is huge investor demand.
The private credit space was a cottage industry a decade ago at less than a quarter trillion dollars. Now it's one and a half trillion, and it's growing like gangbusters. So this kind of liquid credit investing that you're referring to allows the manager to lock up for many years. It's great for their stock price, it may be great for their investors, but you know, we are in a
little bit of a zero sum world. Like if making loans that are secured that are safe, that of you know, a lot of acid coverage at twelve percent or thirteen percent is great for areas, it probably ain't great for the for the borrower, especially in this higher for longer world. So just to close on that, just to say, I think people just even three months ago, we're really expecting rates to come down and that thirteen to go to
twelve eleven ten and really alleviate that pressure. But I think higher for longer we're headed for some sort of collision course between If we have that in conjunction with an economic slowdown, we are going.
To have a default cycle.
We are going to see which firms were good at private credit and which we're not, because private credit has been touted as this like amazing thing, almost like NFTs or you know, chatch ept. I mean, what is private credit? You're you're making loans to smaller companies. I mean, how is that sexy? No, you know so, but it's very sexy for Aris and Apollo and and I look at it like this amazing force that will have hiccups in the years to come.
Now, one more question before you before I let you go, is you know we have a major catalyst around the corner, that is the US presidential election. As a massive investor in credit and also as somebody who looks at volatility very closely, what are you thinking about headed into that election cycle and what comes out of it? How to position?
Yeah, so you know, it's it's coming closer every day, and it warn't our attention. And we'll also if there is a change in the presidency, you'll have a president that people consider as someone that will be less will be more unfettered, let's say, and maybe have scores to settle and have views about how to undo things. And so change generally means volatility. So it's really reflexive to think, Okay,
if Trump is elected, there'll be a lot of volatility. Now, he also is very interested in the stock market going up, which you know usually think about in conjunction with lower volatility. So you know, so, but might might the ways he does that, whether it's a new Fed governor cause.
Some short term short term gain for actual long term pain.
Where interest rates and the front end come down but in the back end go up, and and you know certain firms are affected that way. As when I think through that Trump means volatility. I also the other side of me thinks back to twenty seventeen. We had Trump and we had Kim jongun and he was calling him rocket Man. He was kind of taunting him, and I remember during Rocketman, it wasn't an Elton John reference. Right at that moment, the Vics hit single digits. The VIX
was the all time, it was at nine. I like, I was crying because I'm a long volatility matter. During the VICK is literally at nine, and so you know, the Trump presidency is, if it happens, is going to be in many ways unpredictable, So you think they'll be volatility but let's also remember there was also a lot
of economic stability. Though maybe because we're in a zero percent interest rate world and now having seen the excess of that and the inflation, maybe we're not going to go back to that world, and they'll be volatility whether Trump is elected or Biden is reelected.
Who's better for the bond market?
Biden?
Why he's well, because I think he's less motivated by the stock market and more motivated by what's good for America. On the subject of bonds, I'm not getting that political.
Just bonds.
We will leave it there, Boaz, thank you so much for taking all our questions. That as BoA's mind set of SABA Capital