Shareholders Fight for the Future of Specialist Gold Fund
Stoush between gold fund ASA and activist investor Saba to come to a head on Friday
Shareholders of ASA Gold and Precious Metals (NYSE: ASA) will vote on Friday on the future of the fund.
Founded in 1958, ASA is a Bermuda-based, closed-end investment fund focused on gold and precious metals explorers, developers and producers. It had US$637 million in net assets as of April 30, representing a 66.5% one-year return on a net asset value basis.
ASA’s 17.2% shareholder, New York-based Saba Capital Management won the right to appoint two directors to the ASA board at the 2024 annual general meeting.
In April, Saba called a special meeting to expand the ASA board from four to five members and appoint an additional director, Maryann Bruce, to the board.
ASA shareholder Axel Merk set up a website to “save ASA”, which he described as being under siege.
Merk is also president of Merk Investments, ASA’s investment adviser, and serves as ASA’s chief operating officer.
“Saba Capital, an activist investor, is now pushing to repurpose ASA, your precious metals fund, into a fixed income fund,” Merk said in a video to shareholders.
“This may sound absurd, especially when ASA’s performance is presumably one, if not the highlight, of Saba’s portfolios. But no, this is no joke. Saba is serious.
“Saba has called a special meeting to add a fifth director, giving themselves control of ASA’s board and trampling on shareholder choice to decide the future of ASA.”
Lawsuits filed
On April 21, Saba filed a lawsuit in New York against ASA and its “legacy” board members, Mary Joan Hoene and William Donovan, regarding their readoption of what it described as an unlawful shareholder rights plan.
In December 2023, ASA adopted a “poison pill” that Saba said gave limited duration purchasing rights to common shareholders with beneficial ownership of less than 15% of the fund while denying those rights to all other common shareholders.
In March, the court ruled the plan violated the Investment Company Act of 1940.
“By readopting a poison pill that was already deemed unlawful, ASA, chair Mary Joan Hoene and director William Donovan have once again demonstrated that their priorities are fees and self-preservation – not advancing the interests of all shareholders and respecting the law,” Saba founder and chief investment officer Boaz Weinstein said in a statement when the lawsuit was filed.
“ASA and these entrenched directors have also gone to extreme lengths over the past 16 months to circumvent accountability for their anti-shareholder behaviour and poor stewardship of the fund.
“As evidence, after shareholders elected two of Saba’s candidates to the four-member board in April 2024, the legacy directors excluded both new directors from critical matters by forming sham committees that effectively serve as a ‘Shadow Board.’”
On April 30, ASA director and Saba partner Paul Kazarian filed a legal complaint in the Supreme Court of Bermuda, seeking court oversight of ASA’s shareholder meetings on the basis Hoene and Donovan had breached their fiduciary duties.
Kazarian was granted an interim injunction, which was then extended on June 2.
Proxy advisors back Saba
Earlier this month, independent proxy advisors ISS and Glass Lewis recommended ASA shareholders vote in favour of the Saba resolutions.
ISS pointed to governance failures at ASA and said the appointment of a fifth director would break the deadlock.
“The dissident has presented a compelling case for change, and Bruce has the qualifications and independence that make her a logical addition,” ISS was quoted as saying in its recommendation.
Glass Lewis noted Bruce had publicly committed not to pursue any strategic changes at ASA unless they were approved by shareholders at the next AGM.
“Two leading proxy advisors have now highlighted the deep governance failures of ASA’s legacy directors, Mary Joan Hoene and William Donovan,” Weinstein said.
“From breaking federal law to silencing the voices of their fellow directors, Hoene and Donovan have gone to extreme lengths to disenfranchise shareholders. If they’re not held accountable now, where does it end?
“Despite Axel Merk’s attempts to mislead shareholders, Friday’s vote is simply about restoring board function and ensuring ASA holds its annual meeting. It is not a vote on changing the fund’s strategy or advisor – something both ISS and Glass Lewis recognised.”
The vote will take place during a virtual meeting to be held on Friday at 11am New York time.