One down, but not done, with one to go.
That’s the state of play at Polar Securities, a shareholder not normally known as an activist, in its dealings with two closed end funds that are run from the same office.
This month, Polar Securities lobbed proposals to the trustees at Silver Bullion Trust and Central Gold Trust that were aimed at changing the redemption features of the two funds that own physical bullion. The idea was to reduce the discount between the fund’s net asset value — what the investments held by unitholders were actually worth – and its market price, or what was received when they were sold in the market.
On the Silver Fund, Polar is in a stronger position because it owned more than 5% of the units outstanding. (At the time, it had a 10.02% stake — making it the largest shareholder.) Accordingly, its call for a special unitholder meeting – at which it proposes replacing four of the trustees as well as amending the redemption features – had to receive a response. (The four it wants out are all the independents.) May 20 has now been set for the special meeting.
A few weeks before that date, Silver Bullion will have produced a circular outlining its views — as, presumably, will Polar.
Based from Silver Bullion’s initial reaction, reform may not be in the cards. “If implemented, [it] would result in significant consequences to the Trust’s ongoing expenses, as well as adverse tax consequences for certain Unitholders,” it said, adding that Polar is probably “the only institutional unitholder with sufficient holdings to implement the physical redemption feature if it is adopted.”
So far, Polar has not heard about its proposal to amend the redemption feature at the much larger Central Gold Trust, which has a market cap of US$800 million.
One explanation is that Polar doesn’t have the required ownership level to request a special meeting. (It owns 4.4% of the units outstanding.) But Polar’s proposals have gathered the attention of Chicago-based Pekin Singer Strauss Asset Management. That firm, which is the investment adviser to the Appleseed Fund, as well as to high net worth individuals, owns 6.4% of the outstanding units.
In a statement, Pekin said “we have grown increasingly disappointed by Central GoldTrust’s persistent trading discount, and we welcome the steps taken by Polar to unlock the trust’s unitholder value”
The statement added that it supports the initiative announced by Polar Securities, which, if passed, will allow redemptions of 100% net asset value for those requesting a gold redemption and 95% net asset value for those requesting a cash redemption.
Given its stake and significance – Pekin Singer is the largest shareholder – the manager said it believes “that Central GoldTrust’s current trading discount is entirely due to the lack of a redemption feature, which is why we support the unitholder proposal as currently drafted. We believe an enhanced redemption feature would lead to an elimination of the trading discount and a material increase in the value of Central GoldTrust units.”
If Polar is successful in winning over unitholders for its redemption change, then they will be in a similar position as unitholders at similar bullion funds managed by Sprott Asset Management and the Royal Canadian Mint.