Boaz Weinstein’s hedge fund sued BlackRock Advisors, saying the asset manager has prevented outsiders from gaining board seats at several of its funds.
Weinstein’s Saba Capital Master Fund accused some BlackRock closed-end funds and their boards of unilaterally adopting corporate governance rules that favor board incumbents, according to the case filed June 4 in Delaware Chancery Court.
Saba said that the funds’ bylaws makes it easier for uncontested incumbents to win re-election, while outsider nominees in contested elections have a higher bar to clear. The suit said that the bylaws allow uncontested incumbents to win re-election with a plurality of votes, while dissident nominees in contested elections must get a majority of outstanding shares.
“The board’s dual vote standard is an impermissible, self-interested interference with the shareholder right to nominate and elect trustees,” the suit said. Saba sued the BlackRock Credit Allocation Income Trust and the BlackRock New York Municipal Bond Trust. It also sued the BlackRock Muni New York Intermediate Duration Fund (MNE).
BlackRock spokesman Brian Beades said the lawsuit is a move to strengthen Saba’s short-term position so it can make a quick profit selling its stake.
Weinstein founded New York-based Saba Capital in 2009 after co-managing Deutsche Bank’s credit business. The hedge fund invests in securities including convertible bonds, closed-end funds and stock indexes. Activist investors have taken large stakes in at least 100 closed-end funds as of Dec. 31, Bloomberg reported in April.
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Following criticism for its faulty 2016 election algorithms, the firm appointed a new research director to collaborate with its quants and money managers.
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The recent plunge raised suspicions that quants had caused or exacerbated the sell-off.
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Despite returns of about 8% last year, the products lagged behind the S&P 500’s 22% climb.
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BlackRock CEO Larry Fink has been a strong advocate of board accountability and shareholder rights. The world’s largest asset manager has said that directors or trustees who serve on too many boards spread themselves too thin, limiting their effectiveness.
BlackRock has put in place other measures that it wouldn’t tolerate when investing its own assets, the suit said. These include holding staggered rather than annual board elections, adopting a prohibitive threshold for calling special meetings, and letting the board make unilateral bylaw changes, according to the complaint.
Beades said that although uncontested board incumbents face a low re-election threshold, board members in contested elections must win a majority, just like their challengers. He defended staggered board elections, saying the mechanism is a common way for “closed-end funds, which are different from operating companies,” to ensure stability and protect investors’ long-term interests.
Weinstein’s suit accuses BlackRock of improperly disqualifying four trustee candidates nominated by Saba based on the pretext that they missed the deadline for returning their nominee questionnaires. Beades also said Saba knew or should have known about the deadline when it invested.
“It is disingenuous for Saba, a sophisticated hedge fund who used a major New York law firm, to assert that it can ignore the funds’ longstanding and unambiguous bylaws because it missed a bylaw deadline,” Beades said.
The suit seeks to require BlackRock, the trusts and their boards to let Saba’s nominees stand for election and to apply the same standard to incumbent and dissident nominees.
The case is: Saba Capital Master Fund v. BlackRock Credit Allocation Income Trust, Del. Ch., No. 2019-0416. — Additional reporting from Melissa Karsh
