Boaz Weinstein’s Hedge Fund Takes Aim at Impax’s ‘Terrible’ Run

(Bloomberg) — This is shaping up to be a particularly brutal moment for ESG, as Boaz Weinstein’s hedge fund Saba Capital Management acquires one of the highest-profile environmental investment trusts in the United Kingdom.

Saba made clear last month that he planned to dismiss the board of Impax Environmental Markets (IEM) after increasing its stake to almost 30%. In doing so, it also targeted Impax Asset Management, a pioneer in sustainable investing, which launched IEM in 2002 and has managed the portfolio ever since.

James Carthew, head of investment firm research at QuotedData, says the next step will likely be to take over from Impax, whose track record of managing the trust’s portfolio has been “terrible”.

Saba’s spokesman declined to comment. The company has previously said it plans to replace IEM’s board because the trust’s share price has lagged more than 75% of its benchmark over the past five years.

A representative from Impax said IEM’s investment case was now “more interesting than ever” but declined to comment on the risk that IEM could be removed as investment manager.

Saba’s approach is part of a wider strategy to target UK investment trusts whose share prices are below the net asset value of their underlying holdings. But according to Carthew, the IEM campaign stands out.

The hedge fund’s move “undermines” efforts to pursue sustainable strategies and “takes away that choice for investors in the investment company market,” he said.

“At its core, this is a battle between short-term profiteers with deep pockets and long-term investors with fewer means,” Carthew said.

Losing its IEM mandate would be a significant blow for Impax, long seen as the flag bearer of the sustainable investment movement. But the asset manager has largely missed out on the rise in Big Tech valuations as it has struggled to cope with rising interest rates in recent years. Against this backdrop, its market cap has fallen by more than 90% since its heyday in 2021.

Ian Simm, the asset manager’s chief executive, told investors last year that the worst was over after clients withdrew $14 billion. At the time, he said he expected the company’s assets under management to stabilize.

Then in early April this year, Impax announced net outflows of £2 billion ($2.7 billion) for the quarter ending March 31. The firm currently manages around £22 billion in assets, down from a peak of £41.4 billion in December 2021. This is despite a nearly 70% rebound in clean energy stocks last year.

Before Saba’s intervention in April, Impax controlled approximately £925 million of IEM’s total net assets. The investment trust has around £200 million on hand after shareholders sold their shares in connection with the tender offer triggered by Saba’s activism.

Hawksmoor Investment Management was among IEM shareholders who transferred their shares last month. Robert Fullerton, senior investment analyst at Hawksmoor, says the current expectation is that Saba will take authority from Impax and then try to run IEM himself. “This is pretty widely known,” he said among market participants monitoring the situation.

IEM’s board acknowledged that the steps Saba had taken since April would give him “effective control” over the investment trust, with the power to influence its “strategy, objectives and mandate”.

An Impax spokesman said the asset manager still hoped to retain a “meaningful percentage” of IEM assets by offering investors the option to switch to the Impax UCITS fund.

If Saba receives the IEM investment mandate from Impax, it is currently affiliated with Baillie Gifford & Co. He will be following the strategy established by his management of Edinburgh Worldwide Investment Trust Plc. Last month the hedge fund put itself forward as the trust’s new investment manager after taking a controlling stake and ousting the board. He promised to take on the foundation’s current fee structure.

As of January, Saba had shares in 46 UK-listed investment trusts, according to AJ Bell. This corresponds to approximately one in every six people.

QuotedData’s Carthew says the expectation is that Saba will eventually merge Edinburgh Worldwide with IEM as the hedge fund continues to target other UK trusts trading at a discount to NAV.

“They will have a larger vehicle and will be able to use that to buy shares in other closed-end funds,” he said. “They’ll start bidding on things.”

–With help from Leonard Kehnscherper.

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