Saba Capital is targeting a unit of Legg Mason in an activist campaign. Another Legg Mason business stands to profit if it's successful.

Reuters / Richard Brian

Saba Capital founder Boaz Weinstein thinks there's money to be made in closed-end funds, which are ignored by Wall Street.

• Boaz Weinstein's $1.7 billion Saba Capital has taken activist positions in closed-end funds run by large asset managers like BlackRock, Neuberger Berman, and more, with the hopes that new board members would increase the price the funds trade at.
• Saba is currently targeting two closed-end funds run by Western Asset Management, which is owned by $750 billion manager Legg Mason.
• Legg Mason, however, is also backing Saba in its fight against its own asset manager, thanks to its ownership of EnTrust Global, a $20 billion fund-of-hedge-funds that is one of Saba's biggest investors.
• Click here for more BI Prime stories.

Boaz Weinstein's latest activism campaign in closed-end funds has affiliates of $750 billion asset manager Legg Mason on opposite sides of the proxy fight.

Weinstein's $1.7 billion Saba Capital is trying to place new board members on two funds run by Western Asset Management, which is owned by the Baltimore-based Legg: the $679 million Western Global High Income fund and the $891 million Western High Income fund.

The fight between the two sides has included the sharp elbows and choice words common of activist campaigns - Western wrote to the stockholders of the Global High Income fund that the fund "is simply the latest fund that [Saba] is targeting for a quick profit."

"Saba Capital has engaged in 16 proxy contests since its inception in 2009 and currently maintains minimal to no holdings in many of the funds it has previously targeted," the letter reads in bold print. Saba, in its SEC filing announcing the stake it took in the funds, wrote that Western's board structure - which Saba claims protects incumbents - "is strong proof that the board is not acting in the best interests of its shareholders."

See more: WorldQuant's Igor Tulchinsky just guaranteed his team 75% of last year's performance bonus to soothe nerves as quant funds get slammed

But what is unique to this fight is that those would stand to benefit from a Saba victory include investor EnTrust Global, a $20 billion fund-of-hedge funds that is owned by Legg Mason.

While Saba's campaigns have pushed BlackRock to sue the hedge fund and Neuberger Berman has stated that Saba's activism violates the decades-long law that governs retail funds, this is the first time Weinstein gotten support from one side of a manager and pushback from another.

In a statement, Legg Mason states that its affiliates are free to invest in what they believe is the best option for their clients.

See more: D.E. Shaw is going to trial over the sale of a litigation finance portfolio company, shining a light on a side-pocket deal at the secretive hedge fund firm

"If EnTrust Global sees value in investing in or alongside Saba for their client base, that's an independent decision they would make. Western, also with investment independence, believes that they are proactively taking many steps to manage that fund on behalf of all of the closed end investors that invest in it, and they are making that case in the Saba matter, with shareholders and others," the statement reads.

EnTrust and Saba declined to comment.

Weinstein, who was the co-head of credit trading at Deutsche before starting Saba, has made activism in closed-end funds, which trade on exchanges like stocks, a more common occurrence. Asset managers however claim the fund's technique harms retail investors, who are often invested in closed-end funds for the income earned from distributions instead of the discount from the share price.