DEFA14A: ASA Gold and Precious Metals Faces Proxy Fight Amid Shareholder Activism

ASA Gold and Precious Metals is currently engaged in a contested proxy battle with Saba Capital Management, focusing on the fund's investment strategy and discount to net asset value.

Summary

• ASA Gold and Precious Metals is facing a proxy fight initiated by Saba Capital Management, an activist investor.
• Saba is pushing for changes to address the discount at which ASA shares trade compared to their net asset value.
• ASA's management believes Saba's proposals could lead to liquidation of the fund, which they argue is not in the best interest of long-term shareholders.
• ASA's management highlights the fund's unique structure, being founded in 1958 and re-incorporated in Bermuda in 2004, which limits options like converting to an open-end fund.
• A tender offer in 2009 reduced the fund's assets significantly, and current illiquid assets pose challenges for further tender offers.
• The fund's assets under management have grown from under $200 million to $380 million under the current management.
• ASA has a regulatory requirement to keep 20% of its assets custodied in the US, which complicates potential tender offers.
• The company is incurring legal fees to defend against Saba's actions, with some costs covered by insurance after a $100,000 retainer.
• Merk Investments, the advisor, has extended a fee waiver, saving investors approximately $155,000 to date and adding another $100,000 in fee waivers for the year.
• Management urges shareholders to vote the white card to support the current board and strategy.

Sentiment

Score: 4

Explanation: The document conveys a negative sentiment due to the ongoing proxy fight, potential liquidation, and the challenges faced by the fund. While management expresses optimism, the overall situation is concerning.

Positives

• ASA's assets under management have grown from under $200 million to $380 million under the current management.
• Merk Investments has extended a fee waiver, saving investors approximately $155,000 to date and adding another $100,000 in fee waivers for the year.
• The fund has insurance to cover some of the litigation costs associated with the proxy fight, after a $100,000 retainer.

Negatives

• ASA is engaged in a costly proxy fight with Saba Capital Management.
• The fund trades at a discount to its net asset value, which is a concern for shareholders.
• The fund's structure and regulatory requirements limit its options for addressing the discount.
• Legal fees are being incurred to defend against Saba's actions, with a $100,000 retainer.
• Management believes Saba's proposals could lead to liquidation of the fund.

Risks

• The proxy fight with Saba Capital Management could result in significant changes to the fund's strategy or management.
• Saba's proposals to close the discount could lead to liquidation of the fund, which may not be in the best interest of all shareholders.
• The fund's illiquid assets pose challenges for implementing tender offers or other strategies to address the discount.
• A potential bear market could negatively impact the fund's assets under management.
• Failure to comply with regulatory requirements, such as the 20% US custody rule, could result in penalties or other adverse consequences.

Future Outlook

Management is motivated and excited to manage the fund in the long run, provided they receive shareholder support in the proxy fight.

Management Comments

• We believe that most of our investors really like what ASA is doing.
• We think if Saba were to prevail, that they would look at the options that are historically done and what would happen in the end is liquidation.
• We are motivated and excited to manage this fund in the long run.
• We need to send Saba a clear signal that shareholders are supporting the current board, the current strategy.
• We continue to be willing to talk with Saba.

Industry Context

The proxy fight highlights the ongoing challenges faced by closed-end funds in managing discounts to net asset value and the increasing prevalence of activist investors targeting these funds.

Comparison to Industry Standards

• Activist investors like Saba Capital Management frequently target closed-end funds trading at a discount to NAV, similar to their actions with other funds.
• The strategies proposed by Saba, such as tender offers or liquidation, are common tactics used by activists to unlock value in closed-end funds.
• The challenges faced by ASA due to its unique structure and regulatory requirements are not uncommon for international funds operating in the US market.
• The fee waivers offered by Merk Investments are a positive step, but the overall expense ratio of closed-end funds is often higher than comparable open-end funds or ETFs.

Legal Proceedings

• Saba has gone to court about a rights offering that ASA has put in place.

Stakeholder Impact

• Shareholders face uncertainty regarding the future of the fund and the potential for liquidation.
• Employees of ASA and Merk Investments could be impacted by changes in management or strategy.
• The outcome of the proxy fight could affect the fund's ability to invest in gold and precious metals companies.

Next Steps

• Shareholders need to vote on the proxy proposals by April 26th.
• Management will continue to engage with shareholders to address their concerns.
• The outcome of the proxy fight will determine the future direction of the fund.

Key Dates

Keywords

ASA Gold and Precious Metals, Saba Capital Management, proxy fight, discount, net asset value, liquidation, tender offer, closed-end fund, gold, precious metals