Saba Capital’s Weinstein says storm brewing in UK investment trusts
Activist investor Boaz Weinstein has unveiled two new bets in the U.K. investment trust space, where he sees a growing number of trading opportunities emerging from discounted valuations. The Saba Capital founder unveiled two new positions at this year’s Sohn London investment conference — Workspace Group and Pantheon Investments — which he said are trading at significant discounts to their respective net asset values (NAVs). Workspace is a real estate investment trust (REIT) that operates London office properties. Pantheon, meanwhile, is an investment trust focused on private equity investments. WKP-GB YTD mountain Workplace Group Outlining his investment rationale, Weinstein — whose New York-based $6 billion hedge fund trades credit relative value opportunities — said there is “a storm brewing” in the investment trust and closed-ended funds space, where Saba has built positions lately. Closed-end funds offer a fixed number of shares, but also trade publicly on exchanges. “It’s been brewing in the U.K. for the last few years as discounts on investment trusts have widened sharply,” Weinstein told attendees at the Sohn conference on Wednesday. He said the discount today in U.K. investment trusts is £19.5 billion ($25.5 billion), adding that his portfolio has shifted from being 95% U.S. to now 60% U.K. “They are not activist campaigns of ours. But there is an activist – namely me – to help nudge the discount tighter,” Weinstein said of Workspace and Pantheon. PIN-GB YTD mountain Pantheon Equity returns for arbitrage-like risk Weinstein said that if investment trust management “put their shareholders first,” there are enormous gains ahead, noting that it’s “eminently possible” that a 23%-24% return could be achieved in a fund whose discount narrows from 35% to 20%. He said the three main ways to unlock value in investment trusts are buybacks, capital returns such as tenders and liquidations, and take-private deals. Recent stock price moves mean Workspace’s NAV now sits at a 47% discount to what Saba thinks is a fair value, Weinstein added. “Should management be able to find a way to be encouraged gently or strongly to sell something and take the money and buy back shares, that could be incredibly accretive to shareholders,” he said. He described Pantheon as “basically an index fund of private equity — an investment fund that owns private equity funds,” which has been at a 30% discount for “a really long time.” “They could make a sale in the market of a private equity fund that they own that people really want at a 10% discount or 15% discount, take that cash, and buy back their stock,” he explained. “They are also receiving distributions from the underlying private equity portfolio – they could take those distributions and instead of buying a new private equity fund, buy an investment trust of their own, at a 30% discount, and build that up with exactly the things they like and know best,” Weinstein added. “These are just two of a few dozen where we believe investors can earn equity-like returns for arbitrage-like risk with a huge margin of safety.”
<
