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I previously wrote a series of articles describing how the managers of the closed-end Swiss Helvetia Fund (NYSE:SWZ) and their attorneys tried to prevent fund shareholders from voting on a proposal that asked the Board to approve stock buybacks at semi-annual intervals. The SEC staff was not impressed with these efforts and the "interval fund" proposal from investor Walter S. Baer remained on the proxy ballot.

SWZ has finally announced the results of the June 16th shareholders meeting, and now we can see what drove Fund Counsel's objections and obstructions. Despite the Board's unanimous opposition, Proposal 3 passed:

For Against Abstain
9,703,826 7,661,746 720,483

Or, to put it in World Cup format:

  • Shareholder Democracy: 1
  • Swiss Helvetia Fund: 0

Swiss private bankers like the Hottingers (the family that owns SWZ's management company) may believe in bank secrecy (or, as they put it "total confidentiality"), but they don't seem to believe in secret ballots. In what looks like a misguided attempt to portray themselves as champions of small investors, SWZ's proxy report tries to rationalize away the vote for Proposal 3:

Of the Fund's shares that voted "FOR" Proposal 3, over 80% (7,873,871 out of 9,703,826) were voted by two institutional investors. Other than shares voted by those two investors, only 6% of the Fund's shares were voted "FOR" Proposal 3.

Which is sort of like saying "if you don't count California, New York or Florida, then John McCain is President."

And who were these two institutional miscreants? The most recent 13F reports show institutional holdings account for 35.8% of SWZ's outstanding shares. 1607 Capital Partners, LLC of Glen Allen, Virginia owns 4,184,036 (13.3%), followed by Lazard Asset Management (NYSE:LAZ) with 3,689,835 (11.7%) -- a total of exactly 7,873,871 shares. Is SWZ trying to say that its two biggest shareholders don't count?

Looking more closely at the vote breakdown, about 26.5 million of SWZ's 31.5 million outstanding shares were reportly cast in the uncontested elections for directors and for auditor. This is 8.5 million more than the combined total for/against Proposal 3. SWZ's report does not explain the reason for the difference.

It may be that these 8.5 million proxies were "broker non-votes" (a/k/a "trash votes"), where the broker holding the stock voted as recommended by management because the beneficial owner of the account gave no instructions. Trash votes are still allowed for uncontested proxy proposals in investment company elections, but not when there is a real contest.

And note that in this year's uncontested election for directors, over nine million shares -- about 30% of those outstanding -- were marked "withhold." Hardly a ringing vote of confidence. And if you subtract the 8.5 million trash votes from the tally, then every one of the incumbents had more votes "withheld" than were cast "for" them.

1607 Capital and Lazard do not have reputations for being shareholder activists themselves: while they may be willing to support activism, they tend to be passive, "13G"-type investors. But their "hog share" positions in SWZ are so large as to make exit difficult (it's hard to "hit the bid" when you are the bid). Their presence, and SWZ's continued trading discount (-13.7% as of today), may attract the interest of more outspoken CEF investors.

SWZ's Directors have a choice. They could swallow their pride and make some move in the direction of interval fund buybacks, such as announcing a series of small tenders to be activated as/when discounts exceed some trigger level. Or they may hunker down and ignore the message from this year's vote. In that case, next year's SWZ shareholder meeting promises to be -- "interesting."

(Cue the Orchestra. The William Tell Overture. ) "Hi yo Silver, away..."

Disclosure: Author long SWZ

Source: Shareholder Democracy Triumphs at Swiss Helvetia Fund