DEFC14A: BlackRock Capital Allocation Term Trust Faces Activist Challenge from Saba Capital

BlackRock Capital Allocation Term Trust is urging shareholders to vote against Saba Capital's nominees and proposal to terminate the investment management agreement with BlackRock Advisors, LLC.

Summary

• BlackRock Capital Allocation Term Trust (BCAT) is holding an annual meeting on June 26, 2024, where shareholders will vote on the Board of Trustees nominees and a proposal from Saba Capital Management to terminate the investment management agreement with BlackRock Advisors, LLC.
• The Board unanimously opposes both Saba's nominees and proposal, recommending shareholders vote for the Board's nominees (R. Glenn Hubbard, W. Carl Kester, and John M. Perlowski) and against the termination of the investment management agreement.
• The Board believes its nominees have the necessary skills and experience to oversee the Trust and that terminating the agreement with BlackRock Advisors is not in the best interest of shareholders.
• The Board highlights that its members have consistently delivered value to shareholders, including share buybacks that have generated approximately $13 million in shareholder profits.
• The Trust's managed assets as of April 3, 2024, were $1,916,391,497, and there were 107,461,816 common shares outstanding.
• The Board recommends shareholders use the WHITE proxy card to vote and discard any proxy cards received from Saba, as only the latest dated proxy will count.
• Georgeson LLC has been retained to assist with proxy solicitation at an estimated cost of $284,900.
• The Board believes Saba engages in tactics to benefit itself and its own hedge funds and investors, and that Sabas actions are harmful to long-term shareholders of the Trust.

Sentiment

Score: 4

Explanation: The document is primarily defensive, outlining the Board's opposition to an activist investor's proposals. While highlighting some positive performance metrics, the overall tone is cautious due to the potential for disruption and uncertainty.

Positives

• The Board believes its nominees are highly qualified and experienced to oversee the Trust.
• The Board highlights its track record of delivering value to shareholders through initiatives like share buybacks.
• The Trust has a strong portfolio management team, led by Rick Rieder, who was awarded Morningstar's Outstanding Portfolio Manager in 2023.
• The Trust was one of the top performing funds in its peer group in 2023, with a 19.3% return on market price.
• The dollar amount per share of the Trust's monthly distribution grew by 22% in 2023.
• The Board reviews the Investment Management Agreement annually and is best positioned to evaluate BlackRock.

Negatives

• Saba Capital Management is seeking to replace three Board members and terminate the investment management agreement with BlackRock Advisors, LLC.
• The Board believes Saba's actions are harmful to long-term shareholders and are intended to benefit Saba's own hedge funds and investors.
• Termination of the Investment Management Agreement would plunge the Trust into uncertainty about its investment adviser and its future, harming the Trust and its shareholders.
• If Proposal 2 is approved, the Investment Management Agreement will, by its terms, automatically terminate 60 days following the shareholder meeting, potentially leaving the Trust orphaned (i.e., without an investment adviser), causing significant disruptions to the Trusts investment activities and leaving it exposed to substantial risk and expense.

Risks

• The potential for disruption and uncertainty if the investment management agreement with BlackRock Advisors is terminated.
• The risk of increased costs associated with searching for and hiring a new investment advisor.
• The possibility of a decline in the Trust's share trading price and a widening discount between the share price and net asset value if the agreement is terminated.
• The risk that a new investment management agreement may not be approved by shareholders, leaving the Trust without an investment advisor.

Future Outlook

The Board is focused on ensuring the Trust operates responsibly and protects the interests of all shareholders, while pursuing its investment objectives.

Management Comments

• The Board believes the Board Nominees have the skills, qualifications and requisite experience in overseeing investment companies to act in the best interests of ALL shareholders.
• The Board believes that termination of the investment management agreement between the Trust and BlackRock Advisors, LLC is NOT in the best interests of the Trust and its shareholders.

Industry Context

Activist investors like Saba Capital Management often target closed-end funds to unlock value through various strategies, including tender offers, open-ending, or changes in management. This situation reflects a broader trend of increased shareholder activism in the investment management industry.

Comparison to Industry Standards

• BlackRock is the world's largest asset manager and the largest manager of closed-end funds, with more than 35 years of advisory experience.
• The Trust's peer group is the Morningstar Tactical Allocation category.
• The Trust was one of the top performing funds in its peer group in 2023 on a market price basis, returning 19.3% on market price compared to its peer groups median return of 9.00% on market price.
• Rick Rieder, the lead portfolio manager, was awarded Morningstar's Outstanding Portfolio Manager of the Year in 2023.

Stakeholder Impact

• Shareholders face potential changes in the Trust's management and investment strategy.
• Employees of BlackRock Advisors, LLC could be affected if the investment management agreement is terminated.
• The Trust's performance and distribution policy could be impacted by the outcome of the shareholder vote.

Next Steps

• Shareholders are urged to vote using the WHITE proxy card by June 26, 2024.
• The Board will continue to review the Trust's performance and consider actions to address any discount to net asset value.

Key Dates

Keywords

BlackRock Capital Allocation Term Trust, Saba Capital Management, Proxy Statement, Board of Trustees, Investment Management Agreement, Shareholder Vote, Activist Hedge Fund, BlackRock Advisors, Annual Meeting, Board Nominees