Investment trusts face pressure for change

The Dundee-based trust came under fire from hedge fund Laxey Partners, which called on Alliance to cut its discount and introduce a formal share buyback policy. Laxey's bid fell short but was backed by one in three shareholders.

The challenge is likely to spark greater investor scrutiny of discounts and force other trusts into a rethink, according to Scott Ballantyne, investment manager at Gillespie Macandrew in Edinburgh.

"Laxey's stake was small, but it did bring the issue to the fore again and its challenge will have an impact. There are some wide discounts in the sector - if these persist, people might look at them and decide managements need a shake-up."

The Alliance discount is now down to 14 per cent, following a string of share buybacks. The widest discount in the same global growth sector is currently 28 per cent, with others at around 21 and 17 per cent.

David Thomson, chief investment officer at VWM Wealth Management, said: "I certainly hope and expect that there will be more shareholder focus on discounts and that trust boards will put more formal arrangements regarding buybacks in place. It is a pity Alliance Trust has not done the same - but it may be pleased by the publicity the issue has generated, on the basis that any publicity is good publicity."

Haig Bathgate, investment director at Turcan Connell, said the Laxey campaign means that no trust is off-limits from shareholder activism. "Historically it has tended to be the smaller investment trusts that were subject to this kind of activity."

But Bathgate believes that Katherine Garrett-Cox, Alliance's chief executive, should be given more time. "The initial signs are encouraging - a number of the points Laxey made in relation to share buybacks had already started under her guidance, although clearly not to the extent that would satisfy Laxey," he said.