Baillie Gifford Faces Shareholder Revolt Over Blocked Trust Merger

The Edinburgh investment house Baillie Gifford has found itself under scrutiny once again, just eighteen months after a previous controversy over its sponsorship of literary festivals amid criticism of its fossil fuel investments. Last week, hedge fund manager Boaz Weinstein of Saba Capital blocked a proposed £1.5 billion merger between Edinburgh Worldwide and Baillie Gifford US Growth Trust, intensifying the debate over whose interests such mergers serve.

Weinstein, who holds a significant stake in both trusts, has accused Baillie Gifford and the board of Edinburgh Worldwide of prioritising the fund manager’s interests over those of shareholders. Under the proposed merger terms, Baillie Gifford would have continued to manage the combined entity. Weinstein has described the arrangement as one that entrenches an unaccountable manager and fails to put shareholders first.

The board of Edinburgh Worldwide responded by asserting that Saba Capital is attempting to take control of the company for its own commercial gain at the expense of the majority of shareholders. Baillie Gifford, meanwhile, has opted not to comment on the matter, maintaining its usual stance of silence in the face of criticism.

This development follows a recent trend of failed mergers in the investment trust sector. Only a day prior, the proposed £5.3 billion merger between HICL Infrastructure and The Renewables Infrastructure Group was abandoned following shareholder opposition. In both cases, asset manager mandates remained a key issue, with accusations surfacing that merger plans were constructed to benefit managers more than investors. Such mandates are highly prized by fund managers, given the stability and longevity these contracts provide.

Baillie Gifford remains a dominant force in the sector, managing twelve trusts including Scottish Mortgage, Monks and Scottish American. Last year, it received fees of £3.32 million from Edinburgh Worldwide and £4.26 million from Baillie Gifford US Growth Trust. Both trusts indicated Baillie Gifford would temporarily waive fees following the merger, though the duration of any waiver was not specified.

The sector is facing consolidation pressures. The number of UK-listed investment trusts has dropped from 310 to 240 over the past three years, with projections indicating a further contraction. Wealth managers now largely prefer trusts with market capitalisations above £500 million, narrowing the field for both existing and emerging trusts and driving increased competition among asset managers including JP Morgan, Janus Henderson, Aberdeen, Fidelity International and Schroders.

Disputes are also emerging over the suitability of merger partners, particularly when there is a risk of relinquishing focus on specialised investment strategies. Some shareholders in Edinburgh Worldwide are cautious about diluting its focus on smaller companies by merging with an entity weighted towards larger US businesses. These tensions underscore the complexity of aligning shareholder and manager interests, especially in an environment where board loyalties can be influenced by longstanding relationships with fund managers.

The situation is set to escalate further at the next shareholder meeting, where Saba Capital plans to mount a renewed challenge to replace the board of Edinburgh Worldwide. The outcome is uncertain, and the episode signals a challenging period ahead for the sector as activist investors seek to reshape the industry and trust boards defend their current arrangements.