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

BlackRock is actively defending its closed-end funds (CEFs) against activist investor Saba Capital Management, emphasizing the funds' unique value proposition, recent performance improvements, and the board's commitment to protecting all shareholders' interests.

Summary

• BlackRock is presenting its case for its closed-end funds (CEFs) against challenges from Saba Capital Management.
• BlackRock emphasizes its long history in CEFs since 1988, focusing on innovation and meeting shareholder needs.
• The Funds Boards aim to protect all shareholders, focusing on steady income and mitigating discounts.
• BlackRock highlights its investment expertise, risk management, and distribution support, backed by over 19,000 professionals.
• The document argues that Saba's tactics are self-serving and not in the best interests of all shareholders, and that Saba's nominees are unqualified and conflicted.
• BlackRock details the characteristics of the contested CEFs' shareholders, noting an average position size of ~$32K, a median income of $104K, and that ~2/3 of shareholders are 60+ years of age.
• The Funds Boards have taken decisive actions to drive significant performance improvements and substantial discount reductions since challenging lows in 2022.
• BlackRock highlights the unique structures of several funds, including limited terms with liquidity events at NAV and access to private markets.
• The document outlines specific actions taken to mitigate discounts, such as inclusion in CEF indexes, fund of funds agreements, distribution rate increases, and share repurchase programs.
• BlackRock argues that Saba's actions aim to make money through financial engineering at the expense of other CEF shareholders.
• The document claims that Saba does not deliver positive change as a manager, citing examples of increased fees and underperformance at funds previously taken over by Saba.
• BlackRock questions whether Saba's interests are aligned with those of all shareholders, pointing to decreased fund ownership and increased expenses at funds where Saba has taken control.
• BlackRock argues that Saba's nominees are unqualified and conflicted, and that the current Funds Boards have the best interests of all shareholders in mind.

Sentiment

Score: 7

Explanation: The document presents a positive outlook on BlackRock's CEFs, highlighting performance improvements and actions taken to enhance shareholder value. However, the ongoing proxy contest with Saba Capital Management introduces uncertainty and potential risks, tempering the overall sentiment.

Positives

• BlackRock has a long history and established leadership in closed-end funds (CEFs).
• The Funds Boards are focused on protecting shareholders' interests and providing steady income.
• BlackRock provides substantial investment expertise, risk management, and distribution support.
• The Funds Boards have taken decisive actions to improve performance and reduce discounts.
• Several funds have unique structures, including limited terms with liquidity events at NAV and access to private markets.
• BlackRock is actively engaging with shareholders to address their concerns.
• The document outlines specific actions taken to mitigate discounts, such as inclusion in CEF indexes, fund of funds agreements, distribution rate increases, and share repurchase programs.
• The Funds Boards have taken decisive actions to drive significant performance improvements and substantial discount reductions since challenging lows in 2022.
• BFZ reduced its management fee by 3 bps on managed assets effective January 1, 2023.

Negatives

• Some of the contested CEFs trade at a discount to NAV.
• Saba Capital Management is challenging BlackRock's management of the CEFs.
• The document argues that Saba's tactics are self-serving and not in the best interests of all shareholders.
• The document claims that Saba does not deliver positive change as a manager, citing examples of increased fees and underperformance.
• BlackRock questions whether Saba's interests are aligned with those of all shareholders, pointing to decreased fund ownership and increased expenses.
• The document argues that Saba's nominees are unqualified and conflicted.
• 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.

Risks

• The inherent conflict between Saba's self-serving interests and those of other shareholders could harm other shareholders.
• Saba's aggressive tactics and potential changes to fund strategies could negatively impact shareholder value.
• The document claims that Saba does not deliver positive change as a manager, citing examples of increased fees and underperformance.
• BlackRock questions whether Saba's interests are aligned with those of all shareholders, pointing to decreased fund ownership and increased expenses.
• The document argues that Saba's nominees are unqualified and conflicted.
• Market fluctuations and economic conditions could impact the performance of the CEFs.
• The document mentions that private investments contribute to performance during market drawdowns and detract from performance in more supportive market environments, due to the lag between private company valuations and publicly traded stocks.

Future Outlook

The document does not provide specific forward-looking statements or guidance, but it emphasizes BlackRock's commitment to improving fund performance and protecting shareholder value.

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.
• Daniel L. Lippincott, CFA President and Chief Investment Officer, Karpus Investment Management stated 'Our recent engagement with BlackRock was constructive and productive, resulting in fund enhancements that we believe will add to what BlackRock is already doing to address discounts and enhance the total return to shareholders of these closed-end funds.'

Industry Context

This announcement is related to the ongoing trend of shareholder activism in the closed-end fund space, where activist investors like Saba Capital Management seek to influence fund management and governance to unlock value.

Comparison to Industry Standards

• The document compares the performance of BlackRock's CEFs to peer medians and relevant benchmarks.
• For example, BCAT's 1-year TSR is 1,274bps higher than peers' median.
• ECAT has outperformed peers' median by 2,577bps in the 1-year timeframe.
• BIGZ has outperformed ARKK since inception.
• BFZ's 1-year TSR of 15.84% is 1,139bps higher than peers' median.
• BNY's YTD TSR is 110bps ahead of peers' median.
• MHN outperformed peers YTD as well as over 5and 10-year periods.
• MPA's 1-year TSR is 9.65%, 290bps higher than peers' median.
• MYN's 1-year TSR of 9.78% is 277bps higher than peers' median.
• The document also compares expense ratios to peer medians, noting that several funds have expense ratios in the 1st quartile.

Legal Proceedings

• Saba initiates costly and unnecessary litigation challenging the Funds typical requirements, which are applicable to all shareholders.

Stakeholder Impact

• The outcome of the proxy contest will impact shareholders, as it will determine the composition of the Funds Boards.
• The Funds Boards' actions to improve performance and reduce discounts will benefit shareholders.
• Saba's tactics and potential changes to fund strategies could negatively impact shareholder value.

Next Steps

• Shareholders will vote on the election of directors at the upcoming annual meetings.
• The Funds Boards will continue to engage with shareholders and monitor fund performance.
• BlackRock will continue to implement discount management initiatives and seek to enhance shareholder value.

Key Dates

Keywords

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