Hedge fund targeting Alliance Trust facing struggle

Elliott Advisors' bid to shake up board of  investment firm says it is denied access to many shareholders. Picture: TSPL

Elliott Advisors' bid to shake up board of investment firm says it is denied access to many shareholders. Picture: TSPL

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THE activist hedge fund trying to engineer a shake-up at one of Scotland’s oldest investment firms believes it is facing an uphill struggle as Alliance Trust retains key information about the army of small shareholders who will ultimately decide the issue.

Sources close to Elliott Advisors admit it is “not a level playing field” because Dundee-based Alliance can deny them access to the contact details of tens of thousands of small investors who hold voting rights through the company’s own investment arm. “Alliance Trust have the advantage,” admitted a source close to the firm’s campaign team working to get other shareholders on-side for its boardroom putsch.

The $8.6 billion (£5.8bn) US hedge fund is well known for taking on adversaries others dare not – it has successfully bet against governments such as Peru and Congo and has secured a string of court victories against Argentina as it seeks to redeem bonds in full.

However, in its current battle it could be categorised as Goliath rather than David – it faces the task of persuading Alliance’s 50,000 small shareholders to vote with it in order to install on the board three non-executive directors which it has found through an executive search.

Elliott, which has built up a 12 per cent stake and is the Dundee firm’s largest institutional shareholder, says it has been trying to persuade management to take a fresh approach for years. It claims it does not want to exert specific influence but that “if you get the board right other things will right themselves”.

It has nominated former ­financial services executive Anthony Brooke, ex-chief of Legal & General Investment Management and Framlington Peter Chambers and corporate finance expert Rory Macnamara for election as non-executive directors, and wants their appointment to be put to shareholders at Alliance’s annual meeting next month.

The firm said it was specifically concerned about “the persistent underperformance of Alliance Trust’s investment portfolio” as compared to its sector peers and relevant benchmarks, as well as the continuing losses in the trust’s two operating subsidiaries.

But on Friday Alliance issued two rebuttals, first calling on shareholders to reject Elliott’s proposals and then issuing a statement to counter Elliott’s response.

And there are further signs that Alliance’s management is prepared to fight Elliott hard. When the group asked for names and addresses of all the shareholders on the register that it can access, it is believed that these were presented in a PDF format that could not easily be transcribed to a software system in order to contact them automatically.

Elliott, which is employing proxy consultant Boudicca to run its activist campaign, has had to employ staff to transcribe the details onto a spreadsheet manually.

A further 25,000 or so names are not available to Elliott because of the way the shares are held. It is believed that is one of the reasons the hedge fund is fighting a very public campaign, as it attempts to get its message across to the shareholders it cannot reach. 
Alliance’s management appears confident that it will be a futile effort, after presenting a new investment plan last year and delivering its 48th consecutive dividend hike this year.

Alliance Trust chairman ­Karin Forseke said the firm provides an alternative investment product to many on offer, and although Elliott may not value dividends the many long term retail customers certainly do.

“Our investment proposition is very different to what a US hedge fund is looking for,” she said.

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