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

BlackRock urges shareholders to vote against Saba Capital's proposals to replace board members and terminate investment management agreements for several BlackRock closed-end funds.

Summary

• BlackRock is engaged in a proxy fight with Saba Capital Management L.P. regarding the future of several BlackRock closed-end funds (CEFs).
• Saba is attempting to install its own nominees to the boards of these funds and, in some cases, terminate BlackRock's investment management agreements.
• BlackRock is urging shareholders to vote FOR BlackRock's nominees and AGAINST Saba's proposals using the WHITE proxy card.
• BlackRock argues that Saba's proposals are self-serving and aimed at generating a quick profit at the expense of long-term shareholders.
• BlackRock highlights its 35-year history of managing CEFs and delivering long-term value, contrasting it with Saba's lack of experience in launching CEFs.
• BlackRock emphasizes that it has taken steps to narrow the discount of these funds through share repurchases, distribution increases, and discount management programs.
• The company states that it has repurchased $1.3 billion in shares, resulting in over $200 million in gains to shareholders.
• BlackRock also refutes Saba's claim that BlackRock CEFs are underperforming, stating that they are designed to provide steady income.
• BlackRock announced distribution increases across muni CEFs and for certain term CEFs in May 2024, as well as fee waivers and a one-time $2 million management fee waiver for all muni CEFs.
• BlackRock also announced DMPs for 14 of its CEFs.

Sentiment

Score: 7

Explanation: The document is primarily defensive, aiming to reassure shareholders and counter claims made by Saba Capital. While highlighting positive actions taken by BlackRock, the overall tone is one of defending against a challenge, resulting in a moderately positive sentiment.

Positives

• BlackRock has a long history (35+ years) of managing closed-end funds.
• BlackRock has taken actions to narrow discounts, raise distributions, and deliver value for shareholders.
• BlackRock has repurchased $1.3 billion in shares, generating gains for shareholders.
• BlackRock is committed to delivering value for shareholders and has a track record of doing so.
• BlackRock's CEFs offer access to asset classes otherwise unavailable to retail investors.
• BlackRock has implemented discount management programs (DMPs) for several CEFs.
• BlackRock announced distribution increases across muni CEFs and for certain term CEFs in May 2024.
• BlackRock also announced fee waivers and a one-time $2 million management fee waiver for all muni CEFs.

Negatives

• BlackRock is facing a proxy fight with Saba Capital, which is seeking to take control of certain funds.
• Saba claims that BlackRock CEFs are underperforming and trading at a discount to net asset value.
• The CEF market is cyclical, and funds may trade at a premium or discount to net asset value over time.
• Saba has never launched a CEF and has exposed their funds shareholders to riskier assets, like SPACs, or forced liquidity events.
• Both funds Saba took over have traded at discounts and have underperformed under Sabas management.

Risks

• If Saba prevails, BlackRock may no longer manage certain funds, potentially changing the funds' strategies.
• Unwinding illiquid assets suddenly could cause a fund to sell assets at lower prices and potentially incur tax consequences.
• Saba's actions could lead to short-term benefits at the expense of long-term consequences for shareholders.
• Saba's interests may not be aligned with those of retail shareholders looking for stable income.
• Proxy fights can be costly and disruptive to fund management.

Future Outlook

BlackRock is focused on helping shareholders reach their financial goals and is committed to delivering value for shareholders.

Management Comments

• BlackRock and your Funds Board regularly act to address closed-end fund discounts.
• We've bought back $1.3B in shares to date, resulting in more than $200M in gains to shareholders.
• We generated $3.6B in tangible gains in 2023 alone; we expect 2024 fund payouts of $3.2B to help you meet your financial goals.
• BlackRock and your Funds Board have taken numerous shareholder-friendly actions to narrow discounts, raise distributions, and deliver value for all shareholders.
• We believe Saba is trying to take advantage of closed-end fund market conditions to make a quick profit at the expense of its fellow shareholders.
• BlackRock and your Funds Board have consistently worked to improve performance and reduce discounts in recent years.

Industry Context

This proxy fight highlights the increasing activism targeting closed-end funds, as hedge funds seek to exploit market dynamics for short-term gains. The outcome could set a precedent for future engagements between fund managers and activist investors.

Comparison to Industry Standards

• BlackRock's 35-year history in managing CEFs provides a strong foundation compared to Saba's lack of experience in launching and managing such funds.
• BlackRock's actions to address CEF discounts, such as share repurchases and distribution increases, are in line with industry practices aimed at enhancing shareholder value.
• The document highlights that both funds Saba took over have traded at discounts and have underperformed under Sabas management, suggesting BlackRock is a better manager.
• Rick Rieder was named Morningstar's Outstanding Portfolio Manager of the Year* in 2023.

Stakeholder Impact

• The outcome of the proxy fight will directly impact shareholders of the BlackRock closed-end funds.
• Employees of BlackRock's investment management team could be affected if Saba succeeds in terminating the management agreements.
• The stability and investment strategies of the funds are at stake, potentially affecting the income streams of retirees and individuals planning for retirement.

Next Steps

• Shareholders need to vote on the proposals by following the instructions on the WHITE proxy card.
• BlackRock will continue to engage with shareholders to address their concerns and advocate for its board nominees.

Key Dates

Keywords

BlackRock, Saba Capital, Closed-End Funds, Proxy Fight, Shareholder Activism, Board Nominees, Investment Management Agreement, CEF Discounts, Share Repurchases, Distribution Increases, Discount Management Programs