US Republican Party donor Lars Bader is ramping up the assault by arbitrageurs on one of Scotland's largest investment trusts.
New York-based Bader has declared that his QVT outfit now holds more than 3-per cent of the venerable GBP1.02bn Scottish Investment Trust. He and fellow arbitrageur Bruno Sangle Ferriere, who runs Carrousel Capital in London, now control about 14-per cent of SIT between them.
SIT, run from Edinburgh, has more than 30,000 private shareholders who own about 50-per cent of it, and a heavyweight board which includes Royal Bank of Scotland chairman Sir George Mathewson. Mathewson is believed to hold a view that the arbitrageurs' aims are not in line with those of longerterm private investors.
SIT announced to the stock market yesterday afternoon that QVT now held 3.23-per cent of its shares. Carrousel last declared a holding in June - of 10.62-per cent.
Industry experts predict that the "arb-attack" could result, at the very least, in a substantial reduction in the scale of SIT.
They expect the trust to be forced into making a tender offer for a large proportion of its shares to buy out the hedge funds and any other dissatisfied investors, who would be most likely to be other institutions, rather than private investors.
Arbitrageurs seek to make short-term gains in investment trusts - often by buying in when the discount at which the shares trade to net asset value is wide and then attempting to force restructuring to realise the investment at close to NAV.
One leading investment trust expert questioned yesterday how viable SIT would be as a stand-alone entity if a major shrinkage were to occur through such a restructuring.
This expert did not think SIT would be able to cut its cost base if it shrank, because it would still have to run an international portfolio of equity investments.
The expert said of the QVT declaration: "It does show you that it would kind of look like private investors selling out, and the arbitrageurs are buying in. Between Carrousel and QVT, they have probably got 14-per cent of the company now. That is starting to be quite a sizeable amount of money. I do think the pressure is going to come sooner rather than later.
"I do think a tender offer is probably the most likely thing.
Ultimately it does become a question of scale - how much is tendered and does the company become viable as a standalone company because clearly the cost base won't go down.
"You have got your investment management team in place. You are covering the globe. It depends how significant the tender offer is - whether it remains a viable entity in its own right. . .I think that is probably one of the biggest issues they face."
Bader declined to return a call for comment yesterday.
Sangle-Ferriere described his fellow arbitrageur's declaration of a 3-per cent-plus stake as "interesting".
John Kennedy, manager of SIT, referred inquiries on the QVT announcement to the trust's City public relations consultancy, Maitland.
A spokesman at Maitland said: "We are just saying no comment at this stage."
The Herald revealed last November that SIT was being targeted by Sangle-Ferriere and Bader, before either had declarable stakes.
Asked by The Herald on June 9 if he would like to see corporate activity at SIT, Sangle-Ferriere had replied: "Absolutely. . .I think it should do something to relieve the shareholders, yes."
An industry source has, in the context of SIT, said previously of Bader: "If you are wearing the same pair of shoes as someone else, you are probably going to feel the same about walking the same."
SIT has been no stranger to controversy in recent times, with previous chairman Sir Angus Grossart's length of tenure having been one bone of contention with institutional shareholders.
AXA Investment Managers, one of the biggest shareholders in the under-siege SIT with a stake of about 7-per cent, has told The Herald it would be "interested to hear" of any proposition from the Scottish trust to add value for shareholders.
