(Bloomberg) -- Saba Capital Management’s Boaz Weinstein is known for his credit derivatives bets, but his current focus is about unlocking value from closed-end mutual funds.
A quarter of funds in the $500 billion market are trading at “gaping discounts,” Weinstein said, adding that he views it as “buying dollars for 80 cents.” The discount across funds is about $60 billion, he said.
Weinstein’s strategy is to elect a board that can change the structure of the closed-end fund to an open-ended fund. Just under half, or 46%, of Saba’s flagship fund is invested in closed-end funds, he said.
“Closed-end fund arbitrage is the thing I’m most interested in today because it is tangible — it’s an arbitrage that you can collapse yourself,” he said at the Bloomberg Invest conference in New York Wednesday. “In closed-end fund arbitrage you can actually control your destiny.”
But there’s a tension between managers who would like to keep the funds closed. Saba has active campaigns against three BlackRock Inc. funds.
“Every single shareholder would win,” if the firm made the funds open-ended or conducted tender offers, he said.
“I’ll just say that they’re a thought leader, but what they are doing to entrench with respect to stripping shareholder rights, banning shareholder proposals which they’ve done, puts them at the G side of governance as the worst company in the S&P 500,” Weinstein said.
“Saba’s interest is short-term profit—not governance. Its playbook involves disrupting the investment objectives and strategies of closed-end funds by seeking to force tender offers, open-endings or liquidations to enrich itself at the expense of other shareholders,” a representative for BlackRock said in a statement.
Saba, which runs a tail-risk strategy, profited during the banking turmoil in March. It writes protection on high-quality names whose credit default swaps it considers expensive, and buys protection on companies whose risks are being underpriced.
Recently, pension funds, endowments and Europeans investors haven’t been looking at the strategy from the perspective of being bearish, Weinstein said on Wednesday. Instead, they’ve been conditioned to think about it as a way they can be protected during a selloff, so they can invest the money they redeem to buy the dip, he said.
“Tail funds, I think, accomplish that pretty well,” Weinstein said.
--With assistance from Silla Brush.
(Updates with BlackRock comment.)
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