Alliance Trust is targeting £6m of cost savings as it shakes up the trust in a raft of changes, including cutting fees, changing the asset allocation and separating out the investment management of the trust to make it more accountable.
The trust has made the changes to boost performance and improve the structure of the organisation, after what Alliance Trust chair Karin Forseke says has been a “challenging” period for the trust.
Rather than running the investments in-house, it has awarded the investment management contract to Alliance Trust Investments with a formal management contract in a bid to increase performance and accountability.
ATI will charge the trust 0.35 per cent of the net asset value for its services, and will have an independent board from the trust.
The investment performance of the trust will now be linked to the MSCI All Country World Index, with the target benchmark for performance being 1 per cent over the index net of fees.
As a result of the changes, the charges on the trust will reduce, from 60 basis points at the end of 2014 to 45 basis points or lower by the end of 2016. The board claims this will make the trust one of the lowest costs in the market.
The board is also targeting £6m of cost savings for 2016, to make ATI profitable by the end of next year.
The board says: “Anticipated cost efficiencies, of around £6m per annum, are equivalent to more than 20 per cent of the combined recurring asset management costs borne by Alliance Trust and ATI in 2015.
Forseke says: “The actions announced today, taken together, represent some of the biggest changes in our history and are designed to further improve shareholder value.”
The new independent boards for Alliance Trust and ATI will mean Katherine Garrett-Cox will step down from the board of Alliance Trust but remain a director of ATI, and will continue as chief executive of the trust. Susan Noble will also step down from the board of Alliance Trust but will chair the ATI board.
Chief financial officer Alan Trotter will step down from the company after five years as a result of the changes and will “seek to continue his career in a publicly listed company elsewhere”.
Forseke thanked Trotter for his work, adding: “We understand his decision not to remain with ATI and wish him the very best in his future career.
”I would like to thank Katherine for her contribution to the board over the past eight years and I am confident that under her leadership ATI will create significant value for our shareholders.”
The board hopes the changes will help to narrow the discount, but says it is also committed to using share buybacks to narrow it further.
A commitment to paying dividends has also been made, with the board pledging to pay all net income as ordinary dividends and to have a “continuing focus on delivery of progressive dividends”.
The board says it considering outsourcing the management of the trust to an external asset manager and is open to this option in the future, with ATI having a six month notice period for its contract. Recent outperformance since the team took over managing the trust last year was a “major contributor” for keeping the investment management with ATI.
The trust says: “[The board] has concluded that it is in the best interests of all shareholders to continue with the recently appointed investment team.”
However, the asset allocation of the trust will change, focusing more on global equity and disposing of its fixed income, property and legacy mineral rights ”as soon as practicable”. The trust will also stop new investments in private equity and will wait for existing private equity investments to mature.
The board says: “This simplification of the trust will give greater clarity to its investment proposition.”
As part of its new dividend policy, the trust will charge two-thirds of administrative charges from the capital account rather than the revenue account, which will help to boost income.
Last week Alliance Trust appointed former Ignis Asset Management chief executive Chris Samuel and Karl Sternberg, a founding partner of Oxford Investment Partners, to its board.