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Alliance Trust accused of being ‘heavy handed’ as governance row escalates

US hedge fund Elliott Advisors has launched a fresh attack on the board of Alliance Trust as the war of words between the two parties escalates.

The activist investor, which owns a stake in the trust “in excess of 12 per cent”, is pushing for a shake-up of governance and wants to appoint three non-executive directors to the board.

The three candidates put forward are Anthony Brooke, a former executive of SG Warburg, Peter Chambers, former chief executive of Legal & General, and Rory Macnamara, a former corporate financier at Morgan Grenfell.

The 127-year-old investment trust has urged investors to vote against the move in the AGM on 29 April and on 26 March published a circular claiming Elliott “has plans for disruptive actions” and that its interests “are at odds with the company’s other shareholders”. It also suggested the three directors put forward by Elliott are not independent.

In a response published today, Elliott claims Alliance Trust has underperformed its sector peers and relevant benchmarks “over all relevant return periods”. It says £1,000 invested when current chief executive Katherine Garrett-Cox was appointed to the board in 2008 would have grown to £1,671, compared to £1,848 if invested in the global stock market.

Elliott also says the “ongoing charges ratio” published by the company is “distorted” because some costs are excluded. The investor argues the true cost to shareholders was in fact 0.9 per cent in 2014 and 1 per cent, on average, over the past five years.

In addition, Elliott urges Alliance Trust to “improve the sustainability of its dividend policy and dividend growth ambitions”.

Finally, the investor raises concerns about the level of remuneration dished out to the chief executive and chairman during periods of underperformance.

“As a long-term and engaged major shareholder in Alliance Trust, Elliott has repeatedly sought to express legitimate concerns and initiate discussions with the company in private,” Elliott says.

“When the board failed to address matters of substance, we availed ourselves, as a last resort, of the minority protection provisions enshrined in legislation to make a requisition directly to shareholders.

“The debate with fellow shareholders in recent weeks has proven that our criticisms are widely shared.
The company’s heavy-handed response to our proposals has served to validate our concerns of complacency, entrenchment and a lack of true independence on the board.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Peter Robertson 31st March 2015 at 10:08 am

    The discount/ongoing charges issue is the nub of this but I suspect there’s a twist or two to come: most of the extra charge/losses come from the platform, ATS.

    A year ago ATS almost doubled their charges so, as they were closing on break even in 2013, in 2014 they ought to be profitable.

    If that’s true then the notional ongoing charge, as calculated by Elliot, will actually be less than the AMC, reversing the recent picture and giving the Board victory.

    However, if its not true (because ATS have spent the extra revenue on a new system and advertising) then the Board will be embarrassed, perhaps even being forced to sell ATS at just the wrong time.

    Fundamentally ATS seems to be a good business, right type of clients and low cost structure, but AT is probably the wrong owner in the long term – if ATS does badly it increases the AT discount, if ATS does even modestly well it will end up being too big a slice of the AT portfolio – you can’t have an internally managed “investment” being the biggest part of a globally diversified equity portfolio.

  2. I wonder if anyone will have heard of Elliott in 100 years time?

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