Katherine Garrett-Cox on the back foot after Alliance Trust shareholder criticism

Katherine Garrett-Cox’s hopes of winning her latest investor battle at Alliance Trust were dealt a heavy blow by a leading shareholder group yesterday.

ShareSoc, which advises retail investors, expressed its support for US hedge fund Elliott Advisors, which hopes to appoint three directors on to the investment trust’s board.

The shareholder group initially backed the proposal by Alliance’s largest shareholder last month, but was criticised by the company for not waiting until it had set out its defence.

Alliance has since claimed that the three men – Anthony Brooke, Peter Chambers and Rory Macnamara – are not independent and has warned that Elliott will use them to “exert undue influence”. It has also defended its investment performance and claimed its record of paying dividends “is almost unequalled by any FTSE 100-listed company in the UK”.

However, in a letter to retail shareholders, ShareSoc said yesterday: “It is difficult to see how Elliott can pursue disruptive action when the potential three new board members will be in a minority on the board and must act independently of Elliott.

“It is hardly in the interests of Elliott to pursue any agenda that might damage the interests of Alliance shareholders as they are shareholders themselves.”

It also criticised the pay handed to Ms Garrett-Cox, the chief executive, and to the chairman Karin Forseke, advising small shareholders to back the overhaul, which will be voted on at Alliance’s annual meeting in Dundee on 29 April.

ShareSoc’s views are important because about 70 per cent of Alliance’s shareholders are retail investors. Reports by other advisory groups, including Pirc, will be published later this month.

ShareSoc said: “[Alliance Trust’s] rejection of the proposals out of hand seemed unwise and is unfortunately a typical response seen from boards who are reluctant to tackle the key issues when faced by criticism from outside.”

The three directors proposed by Elliott were found by the City headhunter Spencer Stuart. If appointed they are likely to lead a call for change at the £3.6bn investment trust that could result in its portfolio being managed by an external fund manager like Blackrock, Fidelity or Aberdeen Asset Management.

Ms Garrett-Cox previously saw off an attempt by hedge fund Laxey Partners three years ago to overhaul the company’s structure. However, Elliott now controls 12 per cent of its shares, compared to the 1.5 per cent owned by Laxey at the time.

Laxey had wanted external fund managers to look after the company’s portfolio and also called for a review of the trust’s investment performance and the discount between its share price and net asset value.

At the time, Aberdeen Asset Management said it was prepared to replace Garrett-Cox and her team in managing the money.