BlackRock is now clashing with a hedge fund giant over control of funds according to a new report.
Saba Capital Management, Boaz Weinstein’s $4.4 billion hedge fund, has been buying up shares in three of BlackRock’s closed-end funds that are trading at a discount to their underlying assets.
“Aiming to elect outsiders to the funds’ boards and force changes to close that gap, Saba sued BlackRock and other asset managers last month over shareholder voting rights,” says WSJ.
Closed-end funds are a type of mutual fund that issue a limited number of shares when they go to market.
Unlike with open-end funds—the far larger variety with which most investors are familiar—the issuer of a closed-end fund doesn’t issue or redeem new shares.
Because of this, closed-end funds don’t have to worry about redemptions forcing them to sell positions at inopportune times.
The flip side is that the lack of liquidity can lead to the fund’s shares trading for more or less than the value of the securities in the fund.
“Saba uses an arbitrage strategy at closed-end funds, aiming to buy the shares at a big discount and posture for changes that will push them closer to their underlying value. In the past, Saba has agitated for governance changes including converting funds to open-end portfolios or selling the underlying assets and returning the money to shareholders.
BlackRock is aggressively defending its funds from Saba’s attack.”
“The truth is this is a hedge-fund manager who is using its sheer size and assets to take control of closed-end funds for its own benefit at the expense of the retail investor,” said Stephen Minar, managing director of closed-end fund products at BlackRock.
The hedge-fund’s CEO’s lawsuit claims the world’s largest asset manager is “entrenching existing trustees and depriving its closed-end fund shareholders of their voting rights.”
U.S. closed-end funds held $252 billion in assets at the end of 2022 compared with $28.6 trillion in open-end funds, according to the Investment Company Institute.
Other Market News This Month
A new report released on this month shows that the SEC has charged 11 Wall Street firms $289m for widespread recordkeeping failures.
The SEC said that firms admitted to the wrongdoing which led to a total of $289,000,000 in penalties.
“The Securities and Exchange Commission today announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.
Firms admitted the facts set forth in their respective SEC orders.
They acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of $289 million as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations.”
- Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty;
- BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million;
- BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million;
- Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty;
- Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million; and
- SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.
“Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets.
To date, the Commission has brought 30 enforcement actions and ordered over $1.5 billion in penalties to drive this foundational message home.
And while some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
“So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate.
If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”
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