Bill Jamieson: Time will tell if Alliance can restore trust
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Management of this Dundee-based £3.2 billion investment trust, for so long the flagship of Scotland’s presence on the global fund management stage, is to be radically overhauled – again. The in-house investment team put in place barely two years ago is to be sold. In its place is to come a “global equity multi-manager approach” managed by Willis Towers Watson (WTW) – a global risk management business only created earlier this year through corporate merger.
It sounds like the perfectly tailored, highly professional “solution” to today’s investment complexity. But reading the details it could well turn out to be less a racehorse thoroughbred than a pantomime horse with a disputatious jumble of heads and legs.
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WTW boasts a 100-strong research team, of which 50 are focused on equity research and, of these, 21 look at long-only global equity mandates. The group will be responsible for appointing “eight of the world’s top-rated equity managers”. Each will be responsible for a concentrated portfolio of 20 stocks on a best ideas basis. The rationale for the approach is that the combined portfolio of up to 200 holdings will represent less risk than the 60 stocks held at present.
Not all are impressed. “A gallimaufry of eight best-of-breed devolved managements running up to 200 equity positions trying to be all things to all investors” was one sceptical response. However, there are immediate positives. Alliance shares rose on the news and at 620p the discount to net assets is down to 6.2 per cent.
The commitment to dividend growth has been reaffirmed, as has the commitment to share buybacks to bear further down on the discount. And the Alliance Trust Savings scheme is to be retained. This will not please everyone, but among retail investors it is a popular and cost-effective way of building up a share and bond portfolio. After immense effort over recent years it now looks to be bearing fruit – and profits – with some £12bn of assets under administration.
The changes have to be approved by shareholders at an EGM next year. They may not care for the loss of investment management from Scotland, or for the fees and costs that comes with this overhaul – still to be disclosed. And they may well feel that the changes – sweeping though they may seem for a trust that has been so resistant to change – do not go far enough.
Alan Brierley, director of the investment company’s team at stockbroker Canaccord Genuity is positive, saying that “Alliance has at long last reached a point where much stronger fundamentals give it solid foundations on which to build.” But Simon Elliott, research analyst at Winterflood is surprised that there was no move towards an enhanced dividend, possibly by paying realised capital out as income. And he is also surprised that Alliance did not announce a tender offer to provide an exit for Elliott Associates, the activist investor with 17 per cent of the shares. Certainly long gone are the days when Scots fund management companies argued that their distance from the stampeding herds of the City of London and New York enabled them to take a more considered and reflective view of markets and where they were heading. Now we can’t close enough to the immediacy of global action.
Also out of favour appear to be concepts such as “focus” and “overall strategic plan”. There may well be one – but we will not know until the various fund managers are identified and made known to Alliance Trust investors. And one can only await future Alliance Trust investor presentations with trepidation: the prospect of 20 or so “best of breed” fund managers giving their PowerPoint presentations and bottom-up sector-by-sector analysis may require not just comfortable seats but an overnight stay.
Meanwhile, also lost from view is the Alliance management’s recent enthusiasm for “sustainable investing” and the tree-hugging ethical investing style adopted barely two years ago to mixed response. Many investors didn’t much care for it while others could not make out quite what difference it made.
And the net benefit of all this? Alliance Trust – which is chaired by Lord Smith of Kelvin – says it intends to increase its targeted outperformance of the MSCI All Country World index from 1 per cent to 2 per cent, net of costs, over a three-year rolling period. Not all multi-manager approaches have been successful. And only time will tell whether this is the last we have heard of changes at Alliance Trust.