Comment: Deja vu at Alliance but core purpose unclear

Katherine Garrett-Cox of Alliance Trust. Picture: Jane Barlow
Katherine Garrett-Cox of Alliance Trust. Picture: Jane Barlow
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Another week, another management reshuffle at Scottish investment giant Alliance Trust. Chief executive Katherine Garrett-Cox, right, leaves the board but will continue as head of Alliance Trust Investments.

Alan Trotter, the trust’s chief financial officer, is leaving “to seek to continue his career in a publicly listed company elsewhere”. Susan Noble, one of the non-executives on the Alliance Trust board, will leave to chair a new board for Alliance Trust Investments. Karl Sternberg, appointed to the board two weeks ago, will meanwhile chair a committee tasked with reviewing performance.

The reshuffle follows mounting pressure from major shareholder, US hedge fund Elliott Advisers, and comes with earnest commitments to improve. New targets are set for investment performance. The discount to net assets will be reduced. There will be “meaningful” profits from loss-making Alliance Trust Savings. Costs will be cut and non-core assets disposed of.

Heard it all before? Investors can be excused a wearying dizziness over this latest series of boardroom exits, reshuffles and pledges of improvement. The trust seems to have been promising such improvements for years. Will this finally trigger the long-awaited turnaround in the trust’s fortunes and mark an end to the comings and goings? I am not sure that it will.

I wrote here two months ago that the autumn would see a further change at the trust and that Garrett-Cox could decide to step down after seven years at the helm. In the event it hasn’t quite turned out like that. The latest changes are certainly more radical than many had expected and there seems no lack of determination to tackle structural problems within the greater group. The repeated commitment to turn the Alliance Trust Savings platform from loss to “meaningful profit” is welcome but begs the question as to why previous efforts to turn it round have so far failed. It provides an excellent online service to investors and Alliance has the muscle to challenge the likes of the ubiquitous – and highly profitable – Hargreaves Lansdown. The board must either commit to a determined effort to successfully develop the potential of ATS or pull out.

However, that is not the biggest problem. There is still a disconcerting lack of clarity over the central problem at Alliance: its core investment philosophy and method of approach. What is it exactly in investment terms, that differentiates this trust from others? What is it seeking to do that is different to, or better than, its competitors?

To these questions the trust continues to retreat behind a cloud of vaporous platitudes – “social responsibility”, “sustainability”, “shareholder value”. These are neither objectives nor statements of investment strategy. Indeed, they serve to fill a vacuity of thinking at the core. I have recently attended two outstanding investment trust presentations: Standard Life Equity Income Trust and Baillie Gifford’s Scottish Mortgage Trust. Both set out what it was that the funds were trying to do and how they were going about it. They were informed by a clear and distinct investment methodology and the criteria deployed in stock selection. Listening to these presentations, I could not help but wonder what a positive solution it would be for Alliance to be presented with a reverse take-over from either of these trusts. For despite the latest reshuffle I am still missing this clarity of investment strategy and focus. If the emphasis is on capital growth, what, exactly, is the investment methodology this £3 billion trust is pursuing to achieve this?

Meanwhile, what is the policy on investment income? Dividend policy has been all over the place. It once offered a yield that was at least competitive with its peers. Then dividend income seemed no longer as important as it once was – though it certainly remained important for investors. The yield on Alliance shares has drifted down to 1.6 per cent against a global trust sector average across 36 trusts of 2.15 per cent.

Its performance has stuck resolutely in the middle of this group – 19th out of 36 over three years and the discount remains high at 10 per cent. Little wonder investor loyalty has wavered, that it has lost the pre-eminence it once enjoyed as the equity vehicle of choice among family trusts and financial advisers and so many of its traditionally supportive and solidly conservative shareholder base voted in favour of the Elliott nominees.

Arguably the single most important element of this latest reshuffle is a statement that while Alliance Trust Investments will continue to enjoy the mandate to run the trust, this could be lost if it fails to deliver. “The board”, it says, “is open to the option of moving to an external manager or managers as an alternative to self-management in the future”. It may be, of course, that this latest reshuffle does the trick. But without a clear statement on investment purpose and method, I am left with an expectation that the second shoe has still to fall.