Alliance Trust unveiled a shake-up of how it invests billions of pounds yesterday, with a new outsourced model seeing it sell its investments arm to Liontrust Asset Management for up to £30 million.
The 128-year-old Dundee-based investment trust will farm out £3.6 billion of equity investment to eight or so top-rated firms to run its money in a bid to revive lacklustre financial returns.
We are proposing a new approach to the investment management of the equity portfolioLord Smith of Kelvin
Liontrust, which was launched in 1995 and manages £5.6 billion in assets, will pay up to £10m in cash for Alliance Trust Investments (ATI), along with £17m in shares and a further £3m in cash within two years depending on the future level of assets at ATI, which has a book value of almost £20m.
As part of the outcome of a strategic review started last summer following boardroom upheaval, Alliance Trust also launched ambitious new financial benchmarks yesterday. It doubled its outperformance target against the MSCI All Country World Index from 1 per cent to 2 per cent.
Overseeing the arrangements for the new managers will be Willis Towers Watson, which advises on other firms’ investments worth $2.3 trillion. Lord Smith of Kelvin, chairman of Alliance Trust, said: “Since May, the board has evaluated carefully a broad range of options, with an open mind and a clear line of sight on how best we could improve the Trust’s performance.
“We believe there is good appetite for a global equity investment trust and that will remain our overall positioning. However, we are proposing a new approach to the investment management of the equity portfolio.
“Our proposal is that we will move from a single manager to multiple equity managers. All managers will be rated best-in-class and each will create a focused portfolio of their best investment selections.”
The moves met with a mixed industry response. A note from broker Canaccord Genuity said the new structure would “give investors a relatively low cost access to the best ideas of a highly focused and complementary list of leading global equity managers, selected by a manager with a significant depth of resource”.
It is thought the sale of ATI could lead to some duplication and loss of jobs, but that most of the 50 or so related staff in Dundee and Edinburgh are likely to be unaffected. The ATI investment team, which is led by Peter Michaelis and manages 11 funds, will join Liontrust as part of the deal.
Michaelis said: “We have been attracted to Liontrust by the culture of the company and the environment the company provides for fund managers. We will continue to focus on running money according to our own investment process.”
He added: “Liontrust will provide the team and investors with long-term stability. We have also been impressed by the strength of Liontrust’s brand profile and its distribution capability. This is a very important consideration for us as we look to raise the profile of the team and the funds we manage.
“It is a good time to make the move to Liontrust because of the opportunities that the UK retail, institutional and European markets offer sustainable investment funds.”
Earlier this year, Alliance Trust – which was founded in 1888 and has total assets of about £3.6bn – saw a Rothschild‑linked investment company walk away from talks over a potential £5bn tie-up, having last year come under pressure from activist shareholder Elliott in a move that led to two of the rebel investor’s suggested non-executives appointed to its board.
Elliot’s demands for a shake-up of Alliance Trust’s operations and management also triggered the departure of chief executive Katherine Garrett-Cox and chairwoman Karin Forseke.
Canaccord said it was encouraged by the latest changes “and believe that Alliance has at long last reached a point where much stronger fundamentals give it solid foundations”.
But Simon Elliott, head of research at Winterflood, branded the proposals as “underwhelming”, and said “we would not be surprised to see a significant amount of opposition to them or… apathy. It is not clear how this vision of Alliance Trust will substantially increase the fund’s appeal and relevance to investment trust investors and, consequently, we believe that further corporate activity cannot be ruled out”.