Alliance Trust unease after ‘new blood’ demand

Katherine Garrett-Cox, chief executive of Alliance Trust. Picture: Jane Barlow

Elliott, which has built up a 12 per stake and is the Dundee-based firm’s largest shareholder, says it has been trying to persuade management to take a fresh approach for years.

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.

Elliott said: “This initiative is the culmination of a process where we had sought to engage with the company on matters of corporate governance and business concern, but where we have not been met with any meaningful response which addressed those concerns substantively.

“We have therefore concluded that in order for Alliance Trust to improve its performance, for the benefit of all shareholders, the board would benefit from added expertise, experience, and a fresh perspective.”

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 high and inflexible nature of the cost of the trust’s internal investment management function” and the continuing losses in the trust’s two operating subsidiaries, adding to the total costs borne by shareholders.

Alliance Trust has long traded on a relatively wide discount to its net asset value (NAV), and this is not the first time an activist investor has sought to tackle the issue by seeking a shake up in management. Laxey Partners and Aberdeen Asset Management have in recent times made similar attempts to persuade the trust to try a new approach, although they did not hold such a large stake as Elliott now does.

Alliance Trust itself decided to change its investment team and launched a new approach based on sustainability last year.

Last week chief executive Katherine Garrett-Cox hailed the success of the strategy as the group reported an 8.1 per cent rise in NAV per share over the course of 2014. Total shareholder return, its other key metric, was 9 per cent higher as the gap closed slightly on NAV. And the firm increased its dividend payout for the 48th consecutive year.

Around 70 per cent of Alliance shares are held by small or “retail” shareholders. Elliott has written to them asking them to support its proposed board appointments.

It says it is not seeking to push particular policies and a source close to the hedge fund said it just wanted to see “fresh blood” on the board.

He said: “Our view is that if you get the board right other things will right themselves.”

Alliance Trust said it was considering the proposal but appeared wary of the non-executive directors, with sources close to the firm noting that they had been found by a headhunting firm paid by Elliott.

There is also understood to be resentment that the proposal was not put to management first, despite the fact that senior figures at Alliance met with Elliott’s representatives twice last week.

A spokeswoman for Alliance said the board “will consider the requisition put forward, as it would any proposal made by a shareholder, and will respond in due course”.

But she added: “Alliance Trust has strong corporate governance controls in place and has an effective and committed board of directors. We remain entirely focused on running the business, delivering investment performance and acting in the best interests of all of our shareholders with a focus on the long-term.”

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