Activist investor Saba Capital Management has initiated a significant buying campaign in FS KKR Capital (FSK), signaling a potential shift for the business development company (BDC). While a formal 13D filing has not yet been made, Saba’s entry into the market at FSK’s current trading price of approximately $11 per share, which represents a substantial 41.6% discount to its net asset value (NAV), is drawing considerable attention.
Strategic Moves and Market Discounts
Concurrent with Saba’s increased activity, KKR Alternative Assets LP, an affiliate of FSK’s advisor, is reportedly making its own substantial purchases at a similar $11 per share. This move is interpreted by some market observers as a defensive strategy by the advisor’s affiliate to consolidate voting power and potentially ward off activist influence.
Risk and Reward in High-Yield Investments
FSK is characterized as a high-risk, high-yield investment. Investors considering FSK are advised to approach the position with caution, sizing it appropriately and not as a core component of a fixed-income portfolio. For context, safer long-term income investments typically yield around 8%. For instance, the preferred shares of the 1940 Act-protected CEF, HFRO.PR.B, offer a benchmark for more conservative income generation. The pursuit of higher yields within the private credit sector, as offered by FSK, inherently involves greater expenses and elevated risk profiles.
Analyst’s Perspective
Market analysis indicates a beneficial position in FSK, as well as in HFRO.PR.A and HFRO.PR.B, through direct share ownership, options, or other derivative instruments. This analysis reflects personal investment strategies and opinions, not those of any associated financial institutions.
