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

BlackRock is actively defending its closed-end funds against a proxy fight initiated by Saba Capital Management, emphasizing the funds' value proposition and the board's commitment to shareholder interests.

Summary

• BlackRock is presenting a case against Saba Capital Management's attempt to gain control of several of its closed-end funds (CEFs).
• BlackRock emphasizes that its CEFs are designed to meet shareholder financial goals through consistent distributions, diversification, and unique investment opportunities.
• The document highlights that the Funds Boards protect shareholder interests by focusing on steady income and taking actions to mitigate discounts.
• BlackRock 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.
• The presentation details the performance improvements and discount reductions achieved by the Funds Boards and management teams.
• It also outlines specific actions taken to mitigate discounts, such as share repurchase programs and distribution rate increases.
• The document includes performance snapshots for several contested funds, comparing their total shareholder return, premium/discount to NAV, distribution growth, and expense ratios to peer medians.
• BlackRock is actively engaging with shareholders and has reached a settlement with Karpus Management, another large CEF shareholder.
• The document contrasts BlackRock's long history and extensive resources with Saba's track record, claiming Saba has a history of extracting value at the expense of other shareholders.
• BlackRock argues that its current board is better qualified and more independent than Saba's nominees.

Sentiment

Score: 7

Explanation: The document presents a positive view of BlackRock's CEFs and their management, while strongly criticizing Saba Capital's actions. The focus on performance improvements and shareholder value creation contributes to a moderately positive sentiment.

Positives

• BlackRock's CEFs offer consistent and predictable distributions over time and across market cycles.
• The funds provide broad investment opportunities typically unavailable to smaller holders, offered with no performance fee.
• The closed structure of the funds allows for greater investment flexibility and limits forced selling.
• BlackRock has introduced contingent limited-term CEFs with guaranteed liquidity.
• BlackRock has paid 100% of initial costs at IPO for some funds, saving investors money.
• The Funds Boards have taken decisive actions to drive significant performance improvements and substantial discount reductions since 2022.
• BlackRock has a fiduciary mindset and provides industry-leading risk management tools.
• The company has a history of constructive engagements with shareholders, resulting in benefits to all.
• Several funds have outperformed their peers in terms of total shareholder return and have narrower discounts to NAV.
• Many funds have grown their distributions significantly in the past year.

Negatives

• Some of BlackRock's CEFs trade at a discount to NAV.
• The timing of multi-asset and equity fund launches affected performance in the early years due to interest rate rises.
• Private investments in some funds have weighed on performance due to markdowns.
• Saba Capital Management is attempting to gain control of several BlackRock CEFs, which BlackRock argues is not in the best interest of shareholders.
• Saba's nominees are described as unqualified and conflicted.
• Saba has a questionable track record of managing CEFs, according to BlackRock.
• Saba's actions at BRW and SABA have led to decreased fund ownership and increased expenses for all shareholders, according to BlackRock.
• BlackRock claims Saba's multi-year activism campaign has squandered shareholder value.

Risks

• The proxy fight with Saba Capital Management could be costly and disruptive.
• Saba's influence could lead to changes in fund strategy that are not in the best interests of long-term shareholders.
• Market volatility and interest rate changes could negatively impact fund performance.
• Discounts to NAV could persist or widen, reducing shareholder returns.
• Private investments in some funds could continue to weigh on performance.
• Increased expenses could erode shareholder value.
• The potential for reputational harm due to associations with certain individuals or firms.

Future Outlook

The document highlights the limited term structure of several funds, providing for potential liquidity events at NAV in the future (e.g., 2031, 2032, 2033).

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

The document positions BlackRock as a leader in the closed-end fund industry, emphasizing its long history, continuous innovation, and focus on client needs. It contrasts BlackRock's approach with that of Saba Capital, portraying Saba as a disruptive activist with a self-serving agenda.

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.
• It also references specific competitors like ARK Innovation ETF (ARKK) and Baillie Gifford US Discovery Fund (BGUIX) when discussing the BlackRock Innovation and Growth Term Trust (BIGZ).
• The document notes that BCAT has recently outperformed peers, with YTD and 1-year TSR higher than the peer median.
• ECAT has outperformed peers median by 2,577bps in the 1-year timeframe.
• BFZ has outperformed peers over most timeframes, with a 1-year TSR of 15.84% that is 1,139bps higher than peers median.
• BNY has outperformed peers over most timeframes, with a YTD TSR that is 110bps ahead of peers median.
• MHN outperformed peers YTD as well as over 5and 10-year periods.
• MPA has outperformed peers over most timeframes, with a YTD TSR that is 67bps ahead of peers median.
• MYN has outperformed peers over most timeframes, with a 1-year TSR of 9.78% that is 277bps higher than peers median.

Legal Proceedings

• Saba initiated costly and unnecessary litigation challenging the Funds typical requirements, which are applicable to all shareholders.
• Delaware Supreme Court upholds actions taken by the Funds board due to the difficulty of obtaining votes in a proxy fight, despite strong support from other shareholders.

Stakeholder Impact

• Shareholders are directly impacted by the proxy fight and the potential changes in fund management.
• Employees of BlackRock and the CEFs could be affected by changes in strategy or control.
• The outcome of the proxy fight could influence the broader closed-end fund industry and the role of activist investors.

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, proxy fight, shareholder value, discount management, corporate governance, investment performance, distributions, fund management