DEFA14A: BlackRock Defends Closed-End Funds Against Saba Capital, Highlights Performance and Shareholder Value

BlackRock is actively defending its closed-end funds against activist investor Saba Capital Management, emphasizing the funds' value proposition, strong performance, and commitment to shareholder interests.

Summary

• BlackRock is presenting its case for its closed-end funds (CEFs) against challenges from Saba Capital Management.
• The presentation highlights BlackRock's long history in CEFs since 1988, emphasizing continuous innovation and a focus on shareholders' evolving needs.
• BlackRock argues that its CEFs are structured to meet shareholders' financial goals, offering steady income, diversification, and liquidity.
• The Funds Boards are focused on protecting all shareholders, with a focus on their need for steady income, and take proactive actions to mitigate discounts.
• The presentation criticizes Saba's tactics as self-serving and not in the best interests of all shareholders, questioning the qualifications and independence of Saba's nominees to the Funds Boards.
• BlackRock emphasizes the extensive skills and experience of the current trustees, their independence, and their focus on protecting shareholder interests.
• The document details the performance of several contested CEFs, including BCAT, ECAT, BIGZ, BMEZ, BSTZ, BFZ, BNY, MHN, MPA, and MYN, highlighting total shareholder return, discount to NAV, and distribution growth.
• BlackRock outlines actions taken to mitigate discounts, such as share repurchase programs, distribution rate increases, and inclusion in CEF indexes.
• The presentation includes comparisons to peer medians and relevant benchmarks to demonstrate the funds' performance.
• BlackRock is open to engaging with all shareholders and has recently announced a settlement with Karpus Management.
• The document argues that Saba's actions at other funds, such as BRW and SABA, have led to increased expenses and underperformance.
• BlackRock questions the qualifications and independence of Saba's nominees, citing concerns raised by ISS.

Sentiment

Score: 7

Explanation: The document presents a generally positive view of BlackRock's CEFs, emphasizing their value, performance, and management's commitment to shareholder interests. However, it also acknowledges the challenges posed by Saba Capital Management and the need to address discounts to NAV.

Positives

• BlackRock has a long history and leadership position in closed-end funds.
• The Funds Boards are focused on protecting all shareholders, with a focus on their need for steady income, and take proactive actions to mitigate discounts.
• The CEFs offer a unique value proposition, including steady income, diversification, and liquidity.
• BlackRock has taken decisive actions to improve fund performance and reduce discounts, such as share repurchase programs and distribution rate increases.
• Several funds have outperformed their peers over various timeframes.
• BlackRock is open to engaging with shareholders and has reached a settlement with Karpus Management.
• The Funds Boards have extensive skills and experience, ensuring effective oversight of the CEFs.
• BlackRock's total expenses are among the lowest in the peer group (1st quartile) for several funds.

Negatives

• Some of BlackRock's CEFs are trading at a discount to NAV.
• Saba Capital Management is challenging BlackRock's management of these funds.
• Saba's actions at other funds have led to increased expenses and underperformance.
• The timing of the 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, affecting performance.
• BSTZ's performance has been impacted by its significant allocation to private equity where valuations have lagged public markets.

Risks

• Saba Capital Management's activist campaign could disrupt the management and strategy of the contested CEFs.
• The discounts to NAV could persist or widen, impacting shareholder value.
• Market volatility and economic conditions could negatively impact fund performance.
• The Funds Boards may not be able to effectively mitigate the risks associated with private investments.
• Saba's nominees, if elected, could implement changes that are not in the best interests of all shareholders.
• The inherent conflict between Sabas self-serving interests and those of other shareholders could harm other shareholders.

Future Outlook

The Funds Boards and BlackRock will continue to take decisive actions to address trading discounts and enhance shareholder value. The Trusts Board updated its monthly distribution to an annual rate of 20% of its 12-month rolling average daily NAV for BCAT and ECAT.

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, according to Daniel L. Lippincott, CFA, President and Chief Investment Officer, Karpus Investment Management.

Industry Context

This announcement is occurring within a broader trend of increased shareholder activism in the closed-end fund space, with firms like Saba Capital Management seeking to influence fund management and governance. BlackRock's defense highlights the ongoing debate about the best strategies for managing CEFs and maximizing shareholder value.

Comparison to Industry Standards

• The document compares the performance of BlackRock's CEFs to peer medians and relevant benchmarks, such as the MSCI ACWI Index and Bloomberg US Agg Total Return Index.
• For BlackRock Health Sciences Term Trust (BMEZ), the Trusts Board believes BMEZ should be compared to a subset of the Health CEFs: HQL and HQH when assessing performance.
• The document references specific funds like ARK Innovation ETF (ARKK) and Baillie Gifford US Discovery Fund (BGUIX) when discussing BlackRock Innovation and Growth Term Trust (BIGZ).
• The document references specific funds like Invesco CEF Income Composite ETF (PCEF), the largest ETF of CEFs, and S-Network Municipal Bond Closed-End Fund Index which is tracked by VanEck CEF Muni Income ETF (XMPT).

Stakeholder Impact

• Shareholders are directly impacted by the outcome of the proxy contest and the management of the CEFs.
• Employees of BlackRock are impacted by the firm's ability to successfully manage and grow its CEF business.
• The broader investment community is impacted by the trends in shareholder activism and corporate governance in the CEF space.

Next Steps

• Shareholders will vote on the election of directors at the upcoming annual meeting.
• The Funds Boards and BlackRock will continue to engage with shareholders and monitor fund performance.
• BlackRock will continue to implement actions to mitigate discounts and enhance shareholder value.

Key Dates

Keywords

closed-end funds, BlackRock, Saba Capital, shareholder activism, discount to NAV, fund performance, proxy contest, corporate governance, investment management, distributions