DEFA14A: BlackRock Defends Closed-End Funds Against Saba Capital's Proxy Challenge

BlackRock is actively defending its closed-end funds against a proxy challenge from Saba Capital Management, emphasizing the value and unique benefits these funds offer to shareholders.

Summary

• BlackRock is contesting a proxy challenge from Saba Capital Management across ten of its closed-end funds (CEFs).
• BlackRock emphasizes the unique value proposition of its CEFs, including steady distributions, diversification, and access to less liquid strategies.
• The document highlights that the Funds Boards protect shareholders' interests by focusing on steady distributions and mitigating discounts.
• BlackRock argues that Saba's nominees are unqualified and conflicted, with self-serving interests that could harm other shareholders.
• The document details actions taken by the Funds Boards and management teams to improve performance and reduce discounts, including share repurchase programs and distribution rate increases.
• The contested CEFs include BlackRock Capital Allocation Term Trust (BCAT), BlackRock ESG Capital Allocation Term Trust (ECAT), BlackRock Innovation and Growth Term Trust (BIGZ), BlackRock Health Sciences Term Trust (BMEZ), BlackRock Science and Technology Term Trust (BSTZ), BlackRock California Municipal Income Trust (BFZ), BlackRock New York Municipal Income Trust (BNY), BlackRock MuniHoldings New York Quality Fund, Inc. (MHN), BlackRock MuniYield Pennsylvania Quality Fund (MPA), and BlackRock MuniYield New York Quality Fund, Inc. (MYN).
• The document cites that the average position size across the contested CEFs is approximately $32,000 per beneficial holder account.
• The median income of all CEF shareholders is $104,000 as of December 31, 2023.
• Approximately two-thirds of shareholders in the contested CEFs are 60+ years of age.
• BlackRock has implemented discount management programs, including repurchasing up to 2.5% of CEF shares quarterly if trading at a discount greater than 7.5%.

Sentiment

Score: 7

Explanation: The document presents a generally positive view of BlackRock's CEFs and their management, while acknowledging the challenges posed by Saba Capital's proxy contest. The emphasis on outperformance, discount reduction, and shareholder value creation contributes to a moderately positive sentiment.

Positives

• BlackRock has a long history of innovation and client focus in the CEF space.
• The Funds Boards are actively engaged in protecting shareholder interests and enhancing value.
• Many of the contested funds have outperformed their peers and benchmarks.
• BlackRock has taken decisive actions to address trading discounts, including share repurchases and distribution increases.
• The document highlights the benefits of the current Board's experience and independence.
• BlackRock has reached a settlement with Karpus Management, a large CEF shareholder, demonstrating constructive engagement.
• Several funds have implemented limited term structures providing 100% liquidity at NAV at the end of the term.
• Some funds have reduced management fees to benefit shareholders.

Negatives

• Some of the contested funds trade at a discount to NAV.
• Saba Capital is actively challenging the current Board and management.
• The document suggests that Saba's interests may not be aligned with those of all shareholders.
• The timing of multi-asset and equity fund launches affected performance in the early years as interest rate rises negatively impacted both public and private investments.
• BIGZ was launched near the market peak for SMID-cap growth stocks, which has weighed on performance.
• BSTZ's performance has been impacted by the Trust's significant allocation to private equity where valuations have lagged public markets.

Risks

• Saba Capital's actions could lead to changes in fund strategy or liquidation, negatively impacting long-term shareholders.
• The inherent vulnerability of CEFs to opportunistic investors due to arbitrage opportunities and smaller market capitalizations.
• Potential conflicts of interest between Saba's self-serving interests and those of other shareholders.
• The risk that Saba's nominees are unqualified or conflicted.
• Market volatility and economic conditions could impact fund performance and discounts.
• The risk that changes to investment strategy and portfolio structure negatively impact the remaining shareholders.

Future Outlook

The document does not provide specific forward-looking statements but implies a commitment to continue taking actions to enhance shareholder value and address discounts.

Management Comments

• BlackRock's management team as well as the funds Boards have taken more steps than most other closed-end fund managers to benefit Karpus clients as well as all shareholders of these funds.
• We are confident the Board will be able to find a thoughtful and capable manager for significantly less than what Voya is currently charging.

Industry Context

The document positions BlackRock as a leader in the CEF space, emphasizing its commitment to innovation and shareholder value. It also highlights the unique characteristics of CEFs compared to operating companies, justifying different governance practices.

Comparison to Industry Standards

• The document compares the performance and discounts of the contested funds to their peers.
• It references specific ETFs and mutual funds, such as ARK Innovation ETF (ARKK) and Baillie Gifford US Discovery Fund (BGUIX), for performance comparison.
• The document notes that BlackRock's corporate proxy voting guidelines treat CEFs differently than operating companies.
• The document notes that 65% of CEFs (excluding those advised by BlackRock) use a majority standard for quorum.
• The document compares the expense ratios of the contested funds to their peer groups.

Stakeholder Impact

• The outcome of the proxy contest will impact shareholders, employees, and the broader CEF market.
• Saba's actions could lead to changes in fund strategy or liquidation, affecting shareholder returns.
• The document emphasizes the importance of steady distributions for shareholders planning their financial futures.

Next Steps

• Shareholders will vote on the election of directors at the upcoming annual meetings.
• BlackRock will continue to engage with shareholders and take actions to enhance fund performance and reduce discounts.

Key Dates

Keywords

closed-end funds, BlackRock, Saba Capital, proxy contest, shareholders, discount, distributions, governance, investment, CEF