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Saba Capital: An Update to a Case Study in Closed-End Fund Activist Motivations

22 June 2023

Saba Capital: An Update to a Case Study in Closed-End Fund Activist Motivations

In our previous case study, we tracked Saba's increasing stake in the Center Coast MLP & Infrastructure Fund (CEN), culminating in their agreement with Brookfield and CEN in September 2022. Saba had seemingly settled for a more diplomatic route, pulling back from potential board nominations and stipulating terms that would see trustee resignations under specific conditions. As of April 2023, Saba owned 23.09% of CEN.

However, the landscape has once again changed. A recent filing on June 14, 2023, discloses that Saba's stake in CEN has decreased to 16.30%, representing a meaningful divestment from their previous position.

Additionally, the filing reveals a standstill agreement signed on March 30, 2023, between Saba, CEN, and Brookfield. This agreement, in essence, sees CEN commit to measures that lead to the sale of all or part of its holding in KKR Eagle Co-Invest LP and a reorganization of CEN into Center Coast Brookfield Midstream Focus Fund, an open-ended fund. In exchange, Saba agreed to withdraw its previous notice for director nominations submitted in February 2022.

These developments seem to confirm Saba’s complex and multi-faceted strategy. Despite reducing their holdings in CEN, the standstill agreement indicates Saba's sustained influence over CEN's future course. This influence could significantly impact the structure of CEN, specifically in terms of potential sales and a reorganization.

The terms of the standstill agreement might also shed light on Saba's motivations. Given the potential for a reorganization of CEN into an open-end fund, Saba may be betting on the inherent benefits such a transformation might offer, such as continuous share issuance or redemption and potentially more consistent returns.

In terms of monetary gain, Saba's original investment in CEN has likely already yielded substantial returns, as previously discussed, allowing Saba to reduce their stake without significantly denting their profits.

It is crucial to remember, however, that these are informed speculations. Saba's motivations could span a wide range of strategic decisions, risk management, and profitability targets. One thing seems certain -- Saba's sophisticated and nuanced approach to CEF activism continues to evolve, offering intriguing insights into the complex world of fund activism.

Morrow Sodali Fund Solutions publishes 'Views on the News', meticulously curating developments in fund governance and activism to empower fund managers with the insights needed to thrive in an ever-evolving landscape.
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