A healthy aspect of capitalism is that the interests of small shareholders are mostly aligned with large shareholders. When an amateur investor buys shares in the same company as a much larger institution or wealthy individual, the amateur and professional shares in the gains or losses. A majority shareholder might have greater voting rights and be able to influence strategy, but they cannot divert assets away from the small shareholders, to line their own pockets. This is normally true – but it is not always the case.
In 2025, we’ve seen three deals in the investment-trust sector where large shareholders or associated entities appear to have used their position to the disadvantage of minority investors. In all cases, this arose when the shareholder or associated entity has been on both sides of a deal in some form or another.
These deals raise questions about treating minority shareholders fairly and governance in the sector, at a time when many trusts trade at a large discount to net asset value (NAV). All followed the correct procedure and were in no way illegal or against the rules. Yet it is not hard to see why investors might view them as a sign that the system favours wealthy individuals and large institutions. That seems unhealthy.
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'A cautionary tale across investment trust boardrooms'
The most widely criticised example is Dan Loeb’s Third Point Investors (formerly LSE: TPOU and now LSE: MLHL). This trust was a feeder fund, investing all its assets in Loeb’s flagship Third Point hedge fund. Earlier this year, it announced plans for a reverse takeover with Malibu Life, a reinsurance vehicle also created by Loeb, to transform it into a reinsurer.
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It offered only a partial tender offer at a discount to NAV for investors who were not keen on this new strategy. Management won a vote on this plan in August, but would not have done so without votes from shares controlled by Loeb and by the fund’s “VoteCo”.
A VoteCo is a structure set up for regulatory reasons to hold a block of voting shares (it ensures the fund will be a foreign issuer under US securities rules) that is supposed to vote in the interests of all ordinary shareholders.
Loeb would not have been able to vote his shares on the deal at all if the Financial Conduct Authority had not relaxed the rules last July.
“We suspect this deal will live in infamy, a cautionary tale across investment-trust boardrooms and shareholder bases for years to come,” said Winterflood’s analyst Shavar Halberstadt. “Trapping shareholders in an incomparable vehicle in spite of clear opposition” from shareholders “is far from best practice”.
Since Loeb is himself a successful activist, known for pressuring management to act in the best interests of investors, this behaviour is all the more disappointing.
A lesser, but still unsatisfactory, example is Downing Renewables & Infrastructure (LSE: DORE). This trust was trading at a large discount to NAV and Bagnall Energy, its top shareholder, increased its stake from 16% to 25% in January and February. It then bid for the rest at a premium to the undisturbed price, but a 7% discount to NAV. Bagnall is an inheritance-tax management vehicle run by Downing, the manager of DORE. So on the one hand, Downing was collecting fees based on the prevailing NAV, but on the other hand saying that it’s not worth that much with a bid below NAV. Note too that Bagnall’s enlarged 25% stake would give it enough to block a competing bid.
Downing touts itself as a “responsible investor, invest[ing] for a return, while caring for the world we live in”, but it could have treated investors with more respect. Investors ultimately backed the deal, with 15% of votes cast being against. Yet had Bagnall bid earlier instead of building up its stake first, it could have increased the chance of rival offers emerging.
Maximising value for other shareholders
Finally, take Ocean Wilsons (LSE: OCN) and Hansa (LSE: HAN), as discussed recently by MoneyWeek columnist Max King.
As an OCN shareholder, I am less happy than Max with this outcome. After selling its 56% interest in the Wilsons Sons ports business, OCN had $600 million of cash from the sale, plus a portfolio of mostly underperforming hedge funds and private equity worth $341 million. Its book value was $940 million (£699 million), or £19.50 per share.
Management said it would assess options to “maximise shareholder value” and launched a tender to buy back 20% of OCN’s shares at 1,543p, costing just over £100 million. Yet the next step was to merge with Hansa, which, like OCN, is controlled by William Salomon and the Salomon family. Arnhold, a US activist opposed to the deal, pointed to the market reaction in Ocean Wilsons’ shares – down 17% to just over £12 – and the 20% rise in the share price of Hansa as evidence to demonstrate that Ocean Wilsons’ minority shareholders are losing out. It is hard to see why an OCN investor who did not also hold Hansa would vote to merge at such a steep discount to NAV, particularly when over half of OCN’s book value was cash. Results last Friday show that just under 24% of shareholders who voted were against the deal.
Ironically, while Salomon might be good at extracting value from minority shareholders, OCN has shown zero ability when it comes to selecting funds. Since June 2015, its portfolio has increased in value by less than 40% at a time when MSCI World index has increased by 2.6 times.
Had Salomon followed the advice often given to new investors – buy a low-cost index tracker and don’t try to think you are better than anyone else at beating the market – OCN would have been far more successful. Salomon’s father, Walter Salomon, was known as one of the last great European bankers. Walter may have passed on his wealth, but the scion appears not to have inherited his father’s acumen.
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