US judge rules for Saba Capital in closed-end fund voting dispute

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BOSTON, Feb 18 (Reuters) – A U.S. federal judge has ruled that Nuveen and directors of its closed-end funds violated investment company law by stripping hedge fund Saba Capital of all voting rights in a an annual meeting. Saba filed a lawsuit against the Nuveen funds and their trustees in early 2021, arguing that the asset management company unlawfully amended the fund’s articles of association to prevent large shareholders from voting for all of their shares. The changes allowed shareholders to only be able to vote the first 10% of their stake unless they received approval to vote for the remainder.

The $280 billion closed-end fund market is dominated by Nuveen, BlackRock and other investment firms, which charge fees based on a fund’s leveraged assets. Other closed-end fund companies have also changed their bylaws and the move could have a ripple effect on those funds, experts said.

“Saba has the best argument on the s. 18(i) requirement that all shares must be ‘voting shares,'” Judge Paul Oetken wrote in a rare summary judgment order Thursday. “The requirements of Section 18(i) that each share must vote and have equal voting rights are clear and unambiguous,” he wrote.

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Saba, led by Boaz Weinstein, has launched more closed-end fund proxy contests than any other activist in recent years. Nuveen is a wholly owned subsidiary of investment powerhouse TIAA and did not immediately respond to a request for comment.

“The court recognized Nuveen’s self-serving actions for what they are: an unlawful attempt to circumvent the clear equal voting rights requirement of the 1940 Act,” Weinstein told Reuters.

Saba has nominated director candidates at many top investment firms, arguing that shareholders are being harmed because funds often trade at deep discounts to their underlying holdings and have poor corporate governance. .

His Saba Capital Closed-End Opportunities Fund was launched in 2015 and has returned an average of 12.5% ​​per year.

The court rejected Nuveen’s argument that the U.S. Securities and Exchange Commission did in fact allow closed-end funds to adopt controlling share provisions.

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Reporting by Svea Herbst-Bayliss; Editing by Tim Ahmann

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