In a bid to address underperformance and governance concerns, hedge fund Saba Capital, led by investor Boaz Weinstein, has outlined plans for change in 10 closed-end funds at BlackRock that are currently trading at a significant discount to their net asset value.

Saba Capital's proposal includes ousting management at six of these funds, offering investors the opportunity to sell their shares at their true value, and implementing broader governance reforms. The activist fund claims that the underperformance of these funds is directly attributed to BlackRock's management.

Weinstein, known for his involvement in JPMorgan Chase's 2011 "London Whale" trading loss, has set his sights on the index fund giant. Speaking on CNBC's "Squawk Box," he highlighted that nine out of the ten funds in question have incurred losses for investors over the past three years.

At the heart of Saba's campaign, dubbed "Hey BlackRock," is a critique of the company's governance practices. The hedge fund argues that BlackRock operates these closed-end funds in a manner contradictory to the principles it promotes for other companies. Saba estimates that these practices have cost retail investors $1.4 billion in discounts, in addition to management fees.

One specific concern raised by Saba is the voting process during shareholder meetings. They claim that BlackRock automatically supports its own interests if an investor fails to submit their vote, thereby eroding shareholder rights. Saba intends to pursue legal action to rectify this situation.

In response, BlackRock dismisses Saba's allegations as "very misleading," asserting that its funds simply require a majority shareholder vote in favor of decisions. The index fund manager has launched a counter-campaign called "Defend Your Fund," labeling Saba as an activist hedge fund seeking self-enrichment.

Closed-end funds have a fixed number of shares, which means investors must find interested buyers to sell their positions, potentially resulting in selling at a price lower than the fund's underlying asset value. Saba proposes that BlackRock repurchase shares from investors at their true value, providing an opportunity for those who wish to exit while allowing others to continue holding their shares.

Weinstein asserts that Saba's solution would allow investors to choose whether they want to remain invested in the funds or exit accordingly. The proposed changes at BlackRock could occur through a tender offer or a restructuring, as outlined in Saba's investor presentation.

Saba is seeking shareholder approval to fire BlackRock as the manager of the six worst-performing funds. If successful, newly constituted boards would oversee a review process lasting at least six months. Saba's board nominees aim to address fee reductions and other governance improvements, although specifics are yet to be unveiled.

BlackRock maintains that it has historically taken steps to enhance returns in closed-end funds when necessary and welcomes constructive engagement with shareholders who act in good faith.

Weinstein mentions that Saba has initiated similar campaigns at approximately 60 closed-end funds over the past decade, successfully assuming management control in two instances. Lawsuits have been filed against BlackRock in the past, with Saba suing to remove the "vote-stripping provision" and launching another lawsuit this year.

Saba is set to host a webinar for shareholders on Monday; however, it claims that BlackRock has refused to provide the shareholder lists for several funds. The index fund manager denies blocking Saba's access to shareholders, asserting compliance with applicable legal requirements.

As Saba Capital pushes for change, the narrative surrounding BlackRock's closed-end funds takes center stage, with investors eagerly awaiting the outcome of the pending shareholder approval and potential reforms to governance and performance issues.