Investment trust future decided by AGM vote

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Alliance Trust's chief executive Katherine Garrett-Cox yesterday took on a challenge to her leadership of the £3bn investment trust head on. "Today's the day we come out fighting," she said in response to hedge fund manager Laxey Partners' attempt to force Alliance to adopt a discount control mechanism.

"Laxey is only interested in our company for a short-term gain," Mrs Garrett-Cox said. "More than three-quarters of our shares are held by small shareholders who are in it for the long term."

Laxey – which owns 1.7 per cent of Alliance – wants the investment trust to buy back shares to reduce the discount between the its share price and its net asset value. The mechanism would be triggered if the market price falls more than 10 per cent below the NAV – it now stands at 16.5 per cent.

A wide discount is bad news for existing shareholders as it means they could lose out when they come to sell. Laxey has put forward a resolution to Alliance's AGM on 20 May requesting the board introduce the mechanism.

Alliance has urged shareholders to vote against it. "It would not be in the best interest of our shareholders," said Mrs Garrett-Cox. "It would impair our investment flexibility." But the mechanism has been successfully adopted by rival investment trusts such as Foreign & Colonial and Witan.

Alliance Trust's investment performance in recent years has been poor, which is one of the key reasons for the wide discount. Its annual results published yesterday revealed that, over the three years prior to 31 January, it was ranked median in a peer group of comparable investment trusts. Mrs Garrett-Cox claimed this was a "great improvement" on the previous fourth-quartile performance. She became chief executive three years ago.

The trust yesterday declared a shareholder-pleasing fourth interim dividend of 2.2075p. That pushed the total dividend for the year to 8.395p per share, a climb of 3 per cent on the 8.15p paid the previous year. Net asset value climbed 16.2 per cent against the FTSE All Share rise of 18.1 per cent.

It has gained support from key institutional shareholders but Alliance's robust response suggests it's not certain of winning this battle.

Alliance Trust – which was launched in 1888 – has 18,000 direct shareholders while 26,000 invest through Alliance Trust Savings, which owns 21 per cent of the trust.