Boaz Weinstein, founder and chief investment officer of Saba Capital Management, during the Bloomberg Invest event in New York, U.S., on Wednesday, June 7, 2023.

Gina Moon | Bloomberg | Getty Images

Boaz Weinstein, the hedge fund investor on the winning side of JPMorgan Chase’s $6.2 billion, ‘London Whale’ trading loss in 2011, now taking on index fund giant Black stone.

On Friday, Weinstein’s Saba Capital outlined in a presentation seen by CNBC its plans to push for a turnaround at 10 BlackRock closed-end funds that trade at a significant discount to the value of their underlying assets compared to their peers. Saba says the poor performance is a direct result of BlackRock’s management.

The hedge fund wants board control of three BlackRock funds and a minority listing in seven others. It is also seeking to displace BlackRock as manager of six of those ten funds.

“In the last three years, nine out of ten funds that we’re even talking about have lost money for investors,” Weinstein said on CNBC’s “Squawk Box” earlier this week.

In the heart of Saba’s”Hey BlackRock“the campaign is an argument around governance. Saba says in his presentation that BlackRock manages these closed-end funds in the “exactly opposite” way it expects companies to manage themselves.

In doing so, BlackRock is “talking out of both sides of its mouth,” says Saba. That’s costing retail investors $1.4 billion in rebates, according to Saba’s math, on top of the management fees it charges.

BlackRock, Saba says in the deck, “sees itself as a leader in governance but crushes shareholder rights.” With some BlackRock funds, for example, if an investor does not vote at a shareholder meeting, their shares will automatically go to support BlackRock. Saba is suing to change that.

A BlackRock spokesman called that claim “highly misleading” and said these funds “simply require a majority of shareholders to vote affirmatively.”

The index fund manager’s rebuttal, “Protect your fund,” describes Saba as an activist hedge fund that seeks to “get rich.”

The problem and the solution

Closed-end funds have a limited number of shares. Investors looking to sell their positions must find an interested buyer, which means they may not be able to sell at a price that reflects the value of the fund’s holdings.

In contrast, in open-end funds, the investor can redeem his units from the manager in exchange for cash. This is how many index funds, such as those that track the S&P 500, are structured.

Saba says she has a solution. BlackRock must buy back shares from investors at what they’re worth, not where they’re currently trading.

“Investors who want to get out are getting out, and those who want to stay will stay for a hundred years if they want to,” Weinstein told CNBC earlier this week.

Weinstein, who founded Saba in 2009, made his fortune two years later when he noticed that a relatively obscure credit derivatives index was behaving unusually. Saba began buying the underlying derivatives that, unbeknownst to him, were being sold by JPMorgan’s Bruno Ixil. For a time, Saba took huge losses on the position until Iksil’s bet against it failed, costing JPMorgan billions and giving Saba huge profits.

Saba said on its investor deck that changes at BlackRock could take the form of a tender offer or a restructuring. The presentation noted that BlackRock had previously floated its shares in support of an auction at another closed-end fund, where an activist had pushed for a similar change.

At the worst-performing funds compared to their group, Saba seeks shareholder approval to fire the manager. In total, BlackRock is seeking new management of six funds, including BlackRock California Municipal Income Trust (BFZ), BlackRock Innovation and Growth Term Trust (BIGZ) and BlackRock Health Sciences Term Trust (BMEZ).

“BlackRock fails as a manager, delivering underperformance relative to relevant benchmarks and worst-in-class corporate governance,” the deck said.

If Saba gets shareholder approval to fire BlackRock as manager of the six funds, the newly formed boards will conduct a review process for at least six months. Saba says that in addition to offering liquidity to investors, its board members will push for reduced fees and other unspecified management adjustments.

A BlackRock spokesperson told CNBC that the firm has in the past taken steps to improve closed-end fund returns when necessary.

“BlackRock’s closed-end funds welcome constructive engagement with thoughtful shareholders who act in good faith with the shared goal of enhancing long-term value for all,” the spokesperson said.

Weinstein said Saba has run similar campaigns at roughly 60 closed-end funds over the past decade, but has only taken over a fund twice. The hedge fund sues BlackRock last year to eliminate the so-called “vote disqualification provision” on certain funds and filed another lawsuit earlier this year.

BlackRock introduced shareholders through emails and advertisements. “Your reliable, profitable investment,” BlackRock told investors, is under threat from Saba.

Saba plans to host a shareholder webinar on Monday, but says BlackRock has declined to provide the list of shareholders for several of the funds. A BlackRock spokesman said it had “always acted in accordance with all applicable laws” when providing shareholder information and that it had “never blocked Saba’s access to shareholders”.

“What we want is for the shareholders, of which we are the largest but by no means the majority, to make that $1.4 billion, which can be done at the push of a button,” Weinstein told CNBC more early this week.

WATCHING: The full CNBC interview with Saba Capital’s Boaz Weinstein