James Moore: Alliance Trust is under pressure, and quite rightly so


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The Independent Online

Help, help, the wolves of Wall Street are after us! At least that’s how Alliance Trust is telling it.

The company is under siege from a US activist investor, Elliott Advisors. Having built up a substantial shareholding, the latter wants to secure the election of a slate of new directors and to force change at one of Britain’s oldest investment institutions.

What makes this situation unusual is that the outcome of the battle now raging between Alliance and Elliott will be determined not by City institutions but by the legion of small investors who hold about 70 per cent of the trust’s shares.

Alliance has just published various documents ahead of its AGM later this month containing various allegations about Elliott and its past conduct while muttering darkly about what it might plan for the future. Elliott, meanwhile, suggests shareholders look at the trust’s performance compared with its rivals.

So I took its advice and asked my friends at Hargreaves Lansdown, the investment adviser and broker, for some figures. What they show is that the trust produced a return of just over 17 per cent last year, comfortably ahead of the average for its sector, but still below the MSCI World Index in sterling terms.

However, anyone can have a good year now and again. With investment trusts it’s the long-term performance you want to be looking at, and that isn’t so good. Over three years you’d have got a return of 38 per cent, or 53 per cent through holding its shares for five years, which is mediocre at best when compared with rivals and the aforementioned MSCI index.

However, the charges for this mediocrity have been quite high. The trust’s expense ratio came in at 0.67 per cent, 0.75 per cent and 0.6 per cent in 2012, 2013 and 2014, respectively. In 2007 it was 0.38 per cent.

So while investors have been treading water, someone’s been doing rather well. Chief executive Katherine Garrett-Cox joined the board in 2008. A former non-executive director, Tim Ingram, who backs the raiders, points out that she has earned more than £6m during her tenure. Just saying.

Another problem with Alliance is that its market value is quite a bit below the value of its investments. Were this discount to narrow, Elliott would make a quick buck and would probably make a quick exit.

As Alliance has pointed out in its circulars, Elliott isn’t doing what it’s doing for altruistic reasons. The directors it wants to appoint may huff and puff about being independent but they wouldn’t have been on its shortlist had they not been of like mind.

That’s not to say that Elliott isn’t making some good points. Organisations like Elliott only strike when they see problems with a company, problems they can turn into healthy profits by solving.

The ball is now in the ordinary investors’ court. Even if they don’t trust Elliott – and it is understandable why people may be reluctant to fall in line behind it – they ought to make their presence felt by voting. If nothing else, a high turnout would send a message to Alliance that it won’t be able to rest on its laurels even if it wins the day.