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

BlackRock is actively defending its closed-end funds (CEFs) against a proxy fight initiated by Saba Capital Management, emphasizing the value and unique benefits these funds offer to shareholders.

Summary

• BlackRock is engaged in a proxy fight with Saba Capital Management over the control of ten of its closed-end funds (CEFs).
• BlackRock argues that its CEFs are structured to meet the financial goals of shareholders, offering steady distributions, diversification, and unique investment opportunities.
• The document highlights that the Funds Boards protect shareholders' interests by focusing on steady distributions and taking proactive measures to mitigate discounts to NAV.
• BlackRock 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.
• The document presents data showing that several of the contested CEFs have improved performance and reduced discounts to NAV under BlackRock's management.
• BlackRock emphasizes the rigorous oversight provided by the Funds Boards, supported by BlackRock's investment expertise and risk management platform.
• The document also points out that Saba has a history of destructive actions that have harmed CEF shareholders.
• BlackRock highlights that the current trustees are more qualified than Saba's nominees, possessing extensive experience in investment, finance, risk management, and governance.
• The document details actions taken by the Funds Boards to address trading discounts, such as inclusion in CEF indexes, fund of funds agreements, distribution rate increases, and share repurchase programs.
• BlackRock emphasizes that the Funds Boards are open to engaging with all shareholders and have recently reached a settlement with Karpus Management, a large CEF shareholder.
• The document also includes a detailed analysis of Saba's broken promises and actions at BRW and SABA, highlighting increased expenses and decreased fund ownership.
• BlackRock argues that Saba's nominees are unqualified and conflicted, raising questions about their independence and potential for reputational harm.
• The document concludes that only the current Funds Boards have the best interests of all shareholders in mind, and BlackRock is the right manager for these Funds.

Sentiment

Score: 7

Explanation: The document presents a confident defense of BlackRock's management of its CEFs, highlighting positive performance trends and proactive measures taken to enhance shareholder value. While acknowledging the challenges posed by Saba's proxy fight, the overall tone is assertive and optimistic.

Positives

• BlackRock CEFs offer steady distributions, diversification, and unique investment opportunities.
• The Funds Boards actively protect shareholders' interests and mitigate discounts to NAV.
• Several contested CEFs have shown improved performance and reduced discounts under BlackRock's management.
• BlackRock's Aladdin system provides industry-leading risk management.
• The Funds Boards are open to engaging with shareholders, as demonstrated by the settlement with Karpus Management.
• BCAT's distributions have grown significantly, and its current yield is attractive.
• ECAT has also shown substantial distribution growth.
• BIGZ has implemented a significant share repurchase program.
• BFZ has outperformed its peers in terms of total shareholder return.
• BNY has shown strong distribution growth.
• MPA has demonstrated significant distribution growth.
• MYN has also shown strong distribution growth.
• The Funds Boards have taken decisive steps to address trading discounts, such as inclusion in CEF indexes, fund of funds agreements, distribution rate increases, and share repurchase programs.

Negatives

• Saba Capital Management is attempting a proxy fight to gain control of several BlackRock CEFs.
• BlackRock criticizes Saba's tactics as self-serving and not in the best interests of all shareholders.
• Saba has a questionable track record of managing CEFs.
• Saba's nominees are considered unqualified and conflicted.
• Saba has presented no tangible plan for these Funds other than taking self-serving actions at the expense of other shareholders.
• Saba has a history of destructive actions that have harmed CEF shareholders.
• Saba has broken promises and actions at BRW and SABA, highlighting increased expenses and decreased fund ownership.
• Saba's nominees raise many unanswered questions.
• Saba rejected constructive settlement proposals that would provide all shareholders with substantial liquidity.
• BIGZ and ECAT convened their annual meetings three times to reach quorum and Saba failed to submit the proxies of shareholders it had solicited each time.

Risks

• The proxy fight with Saba Capital Management could create uncertainty and disruption for the CEFs.
• Saba's influence could lead to changes in investment strategy or fund structure that are not in the best interests of all shareholders.
• The potential for reputational harm associated with Saba's nominees could negatively impact the funds.
• Market volatility and economic conditions could impact the performance of the CEFs.
• Discounts to NAV could persist or widen, impacting shareholder returns.
• Changes in interest rates could affect the performance of fixed-income CEFs.
• Regulatory changes could impact the operations and governance of the CEFs.
• The inherent conflict between Saba's self-serving interests and those of other shareholders could harm other shareholders.

Future Outlook

The document does not provide specific forward-looking statements or guidance, but it implies a commitment to continue enhancing shareholder value through active management, discount mitigation, and shareholder engagement.

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.
• The Funds Boards seek to actively engage with all shareholders.
• We approach these engagements with the goal of finding reasonable solutions to address shareholder concerns, including when those concerns are raised by institutional investors and hedge funds.

Industry Context

This announcement is occurring within the context of increased activist investor activity targeting closed-end funds, seeking to unlock value through various strategies such as fund liquidations, mergers, or changes in investment policy. The document positions BlackRock as a responsible steward of capital, contrasting its approach with what it characterizes as Saba's self-serving tactics.

Comparison to Industry Standards

• The document compares the performance and discount levels of BlackRock's CEFs to their peers, highlighting instances of outperformance and narrower discounts.
• It also references specific benchmarks for each fund, such as the Russell 2500 Growth Index for BIGZ and the Bloomberg Municipal Bond Index for municipal bond funds.
• The document notes that BlackRock's expense ratios are among the lowest in the peer group for several funds.
• The document compares the Funds governance practices to their peers and the two funds Saba has taken over.
• The document compares the Funds corporate governance practices to those of operating companies, noting that it is inappropriate to compare the Funds corporate governance practices to those of operating companies because there are important differences to CEFs.

Stakeholder Impact

• Shareholders are directly impacted by the outcome of the proxy fight and the potential changes to fund management and strategy.
• Employees of BlackRock and the CEFs could be affected by changes in fund operations or management.
• Customers and clients of the CEFs rely on the funds for income and investment returns.
• Suppliers and service providers to the CEFs could be impacted by changes in fund operations or management.
• The Funds Boards have a duty to protect all shareholders and to ensure a level playing field.

Next Steps

• Shareholders will vote on the election of trustees at the upcoming annual meetings.
• BlackRock will continue to engage with shareholders and implement strategies to enhance fund performance and mitigate discounts to NAV.
• The Funds Boards will continue to monitor the situation and take appropriate actions to protect shareholder interests.

Key Dates

Keywords

closed-end funds, BlackRock, Saba Capital, proxy fight, CEFs, shareholders, distributions, discount, NAV, governance, investment, management, performance, trustees, risk management