Boaz Weinstein’s Saba Capital Faces Lawsuit as Hemorrhage Continues

After the losses of Saba Capital in the said years, PSP Investments reexamined its stake in the hedge fund beginning last year, ultimately requesting Saba to give back all of its investment. Saba Capital appealed to the firm, which manages the pension funds of the Canadian Forces, the Royal Canadian Mounted Police, the Reserve Force of Canada, and the Public Service of Canada, to redeem all its Class A shares in three installments, but PSP Investments rebuffed the request. This is when Saba Capital is alleged to have manipulated its portfolio’s value to diminish the total amount of the payout during the redemption process. Particularly, the lawsuit alleges an “arbitrary” markdown of corporate bonds of McClatchy Co. The lawsuit goes on to say that Saba Capital then marked up the value of the bonds back to the values prior to the redemption.

However, Saba Capital, in a statement quoted by The Wall Street Journal, said that the lawsuit is “meritless,” pointing out that PSP Investments is complaining about the valuation of two securities among over a thousand. Furthermore, the value in contention is just 2.6% of PSP Investment’s former investment with Saba. Saba Capital highlights that the two securities in question were valued via “an industry-standard bid wanted in competition (BWIC) process” in which competitive bids are solicited from every leading broker and dealer of the securities being priced. Furthermore, the valuation is then vetted and approved by at least four external advisors, including auditors, outside counsel, fund administrator, and Saba’s external members of its board of directors apart from the hedge fund’s internal valuation committee, it said. Saba Capital added that the BWIC prices were not used only during the PSP Investments redemption period, but also for the second and third quarters of 2015.

According to its latest 13F, the top picks of Boaz Weinstein’s Saba Capital are mostly in closed-end funds. The top three long positions of the fund, which disclosed a equity portfolio worth $999.39 million, are Blackrock Corporate High Yield Fund Inc (NYSE:HYT), BlackRock Debt Strategies Fund, Inc. (NYSE:DSU), and Blackstone / GSO Strategic Credit Fund (NYSE:BGB) in which it had 6.33 million shares, 16.51 million shares, and 2.4 million shares, respectively, at the end of June.

Disclosure: None