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

BlackRock is actively defending its closed-end funds against a proxy challenge from Saba Capital Management, emphasizing the funds' value proposition for shareholders seeking steady income and the board's commitment to protecting shareholder interests.

Summary

• BlackRock is presenting its case to shareholders regarding its closed-end funds (CEFs) and the ongoing proxy contest with Saba Capital Management.
• BlackRock emphasizes that its CEFs are designed to meet the financial goals of shareholders, offering steady income, diversification, and liquidity.
• The document highlights that the Funds Boards actively protect shareholder interests and have taken steps to improve fund performance and reduce discounts to NAV.
• BlackRock argues that Saba's actions are self-serving and could harm other shareholders, citing Saba's track record at other funds where fees increased and performance lagged.
• The presentation also questions the qualifications and independence of Saba's nominees to the Funds Boards.
• BlackRock highlights the extensive experience and skills of the current trustees, emphasizing their focus on protecting and enhancing shareholder value.
• The document details specific actions taken by the Funds Boards to address trading discounts, such as share repurchase programs, distribution rate increases, and inclusion in CEF indexes.
• The presentation includes performance snapshots for several BlackRock CEFs, comparing their total shareholder return, premium/discount to NAV, and distribution growth to peer medians.
• BlackRock emphasizes that the Funds Boards are open to engaging with all shareholders and have recently reached a settlement with Karpus Management.
• The document also includes detailed biographies of the current board members, highlighting their relevant experience and qualifications.

Sentiment

Score: 7

Explanation: The document presents a generally positive view of BlackRock's CEFs and the Funds Boards, while also addressing the challenges posed by Saba Capital's proxy contest. The tone is defensive but confident, emphasizing the value proposition of the funds and the board's commitment to protecting shareholder interests.

Positives

• BlackRock's CEFs offer a unique value proposition for shareholders seeking steady income and diversification.
• The Funds Boards are actively engaged in protecting shareholder interests and improving fund performance.
• Several BlackRock CEFs have outperformed their peer medians in terms of total shareholder return.
• The Funds Boards have implemented various initiatives to address trading discounts, such as share repurchase programs and distribution rate increases.
• BlackRock is open to engaging with all shareholders and has a track record of constructive engagement.
• The current trustees possess extensive experience and skills relevant to fund oversight.
• The document highlights the benefits of BlackRock's investment expertise, risk management, and distribution support.
• The Funds Boards have a duty to protect all shareholders and to ensure a level playing field.

Negatives

• Some BlackRock CEFs trade at a discount to NAV.
• Saba Capital Management is attempting to gain control of the Funds Boards through a proxy challenge.
• BlackRock alleges that Saba's actions are self-serving and could harm other shareholders.
• The document questions the qualifications and independence of Saba's nominees.
• Saba has a questionable track record of managing CEFs, with increased fees and underperformance at some funds.
• Saba's actions at BRW and SABA have led to decreased fund ownership and increased expenses for all shareholders.
• Saba's nominees have few skills that are relevant to fund oversight.

Risks

• The proxy contest with Saba Capital Management could be costly and disruptive.
• Saba's actions could potentially harm other shareholders if they gain control of the Funds Boards.
• The discounts to NAV at some BlackRock CEFs could persist or widen.
• Market volatility and economic uncertainty could negatively impact fund performance.
• The document mentions that 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.

Future Outlook

The document highlights the limited term structure with 100% liquidity at NAV for selected Funds, providing a built-in liquidity event for shareholders in the future. BCAT has a built-in liquidity event at NAV for all Trust shareholders in 2032. ECAT has a built-in liquidity event at NAV for all Trust shareholders in 2033. BSTZ has a built-in liquidity event at NAV for all Trust shareholders in 2031.

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 Trusts Board believes BCATs performance is best measured against a blended benchmark50% MSCI ACWI Index and 50% Bloomberg US Agg Total Return Index.
• The Trusts Board believes ECATs performance is best measured against a blended benchmark50% MSCI ACWI Index and 50% Bloomberg US Agg Total Return Index.
• The Trusts Board believes BIGZ does not have an appropriate CEF peer.
• The Trusts Board believes BMEZ should be compared to a subset of the Health CEFs: HQL1 and HQH2 when assessing performance.
• Given its investment focus, the Trusts Board believes BSTZs performance should be measured against a custom index, which applies a call overwrite overlay on the MSCI ACWI SMID Growth IT Index, though this does not capture private equity investments.

Industry Context

This announcement is occurring within the context of increased shareholder activism in the closed-end fund space, with hedge funds like Saba Capital seeking to unlock value through various strategies, including proxy contests and fund liquidations. The document positions BlackRock as a responsible steward of capital, focused on long-term value creation for all shareholders, while portraying Saba as a short-term opportunist.

Comparison to Industry Standards

• The document compares the performance of BlackRock's CEFs to their peer medians, as defined by Broadridge and Bloomberg.
• For BCAT, the peer set includes ECAT, GLV, GLO, BXSY, FT, RCG, RIV, OPP and SPE; PDX included in the peer set starting 1/1/2024.
• For ECAT, the peer set includes BCAT, GLV, GLO, BXSY, FT, RCG, RIV, OPP and SPE; PDX included in the peer set starting 1/1/2024.
• For BIGZ, the peer set includes ASG, FUND, HIE, RMT and FXBY.
• For BMEZ, the peer set includes HQL and HQH.
• For BSTZ, the peer set includes BST, STK, NBXG, and AIO.
• For BFZ, the peer set includes MUC, EVM, CEV, VCV, NKX, NAC, PCQ, PCK, and PZC.
• For BNY, the peer set includes MYN, MHN, ENX, VTN, NRK, NAN, PNF, PNI, and PYN.
• For MHN, the peer set includes MYN, BNY, ENX, VTN, NRK, NAN, PNF, PNI, and PYN.
• For MPA, the peer set includes VPV and NQP.
• For MYN, the peer set includes MHN, BNY, ENX, VTN, NRK, NAN, PNF, PNI, and PYN.
• The document also references specific ETFs and mutual funds, such as the Invesco CEF Income Composite ETF (PCEF), VanEck CEF Muni Income ETF (XMPT), ARK Innovation ETF (ARKK), and Baillie Gifford US Discovery Fund (BGUIX), to provide context for the performance of BlackRock's CEFs.

Legal Proceedings

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

Stakeholder Impact

• The outcome of the proxy contest could have a significant impact on shareholders, as it will determine the composition of the Funds Boards.
• The Funds Boards' actions to address trading discounts and improve fund performance are intended to benefit shareholders.
• Saba's actions could potentially harm other shareholders if they gain control of the Funds Boards and implement self-serving strategies.

Next Steps

• Shareholders will vote on the election of trustees at the upcoming annual meetings.
• The Funds Boards will continue to monitor fund performance and implement initiatives to address trading discounts.
• BlackRock will continue to engage with shareholders to address their concerns and solicit their support.

Key Dates

Keywords

closed-end funds, BlackRock, Saba Capital, proxy contest, shareholders, board of trustees, discount to NAV, total shareholder return, distribution rate, corporate governance