Alliance Trust, the 127-year-old, £2.8bn London-listed investment trust, has, according to its March 31 factsheet, lagged behind rival funds in net asset value terms over one, three and five years.
The trust’s shares have traded consistently at a wide discount to the value of its investment portfolio for at least a decade, reflecting poor demand for the shares. Shares of close rival Scottish Mortgage have returned more than double Alliance Trust’s 68 per cent in the past five years, according to FE Analytics data.
Last week the trust’s corporate broker, JPMorgan Cazenove, admitted performance was “lacklustre” and suggested it might conduct an internal review, in a blow for Alliance Trust’s chief executive and lead investment manager, Katherine Garrett-Cox.
Trading volumes in the trust’s shares are typically low, but since March 2011 the UK arm of a US hedge fund, Elliott Advisors, has been building a position in a move that has eased the discount issue slightly. It now holds a 12 per cent stake.
After closed talks proved fruitless, that investor has gone activist, requisitioning the trust’s board to bring resolutions at its forthcoming annual general meeting to appoint three new independent non-executive directors.
Alliance Trust, however, has refused to acknowledge its performance issues and pulled out all the stops, launching a campaign against Elliott. It features a prominent link on its website to a “Support Alliance Trust” site that warns against the resolutions in bold letters.
The trust’s contention is the recruitment firm that found the three nominees, Spencer Stuart, was instructed by Elliott and the nominees are, therefore, not independent.
But the fact is, they would be required under UK regulation to be independent of influence by individual shareholders in their roles on the board. There is no evidence they would breach these rules.
To my mind, it does not matter who nominated these three. What matters is who they are and whether Alliance Trust could benefit.
The nominees are Peter Chambers, a former chief executive of Legal & General Investment Management; Anthony Brooke, who spent nearly 30 years working in the City; and Rory Macnamara, an accountant who is already chairman of another trust.
Alliance Trust claims the nominees are the “thin end of the wedge”, saying Elliott wants to disrupt the trust to its own ends.
But how can it do that by appointing three fresh pairs of eyes, who would be required to be independent, to a board that would have 10 people on it? They would not even have a majority vote to enact change.
Underperforming managers refusing to tolerate dissent, or accept their own shortcomings, are contrary to public sentiment.
That is why Investment Adviser is encouraging investors to vote “yes” to resolutions 14, 15 and 16 at the Alliance Trust AGM on April 29.
John Kenchington is editor of Investment Adviser
