Listing of Romanian trust will reveal Elliott Advisors' management style

A big investment trust flotation scheduled for Wednesday could shine a light on how Elliott Advisors, the activist investor battling to appoint three non-executive directors to the board of Alliance Trust, could behave if it is successful.

Fondul Proprietatea, created by the Romanian state in 2005 to compensate citizens whose assets were confiscated under communism, is the world's fifth-largest closed-end fund, with assets of $3.1bn. It plans to list on the London Stock Exchange on Wednesday.

Elliott is the largest shareholder in Proprietatea, with a 19.7 per cent stake. In September it agreed an unusual contract extension with Franklin Templeton, the fund's manager, stipulating that Templeton will receive additional remuneration for distributing cash to shareholders.

"[Templeton] gets a fee based on share buybacks. That is something I have not seen before. It is an interesting structure," said an industry broker.

Elliott also said it would only support a further extension of Templeton's contract, due for renewal in 2016, if it reduced the discount to net asset value Proprietatea is trading at sharply. It is said to have a team of lawyers in Romania monitoring Templeton to ensure it is creating value.

"I have a lot of respect for Elliott as shareholders and as analysts. They really do a lot of groundwork. They are demanding shareholders," said Grzegorz Konieczny, who manages the fund with input from Mark Mobius, head of Franklin Templeton's emerging markets operation.

Elliott's controversial battle to install directors on Alliance's board will be decided on Wednesday, the same day Proprietatea is due to list in London.

Fondul Proprietatea, quoted on the Bucharest stock exchange, was seeded with 20 per cent stakes in a range of state-controlled Romanian companies and infrastructure assets. Following a wave of flotations, around half of its assets are now in listed companies.

Its largest holdings include stakes in OMV Petrom, the biggest oil and gas producer in southeast Europe, hydropower company Hidroelectrica, natural gas producer Romgaz, Bucharest airport and a swath of electricity supply companies. Almost 90 per cent of its holdings relate to energy production and distribution.

"Energy is out of favour, but every investor should ask themselves, 'Can the oil price go down further, or is there potential for the price to go up?'," said Mr Konieczny, who argued that valuations were low on the Bucharest bourse, which trades on 11.6 times historic earnings.

Fondul Proprietatea is not raising money or issuing new shares as part of the listing, but up to a third of the shares could be converted into global depositary receipts, tradable on the LSE.

The hope is that this will widen the shareholder base and narrow the trust's discount to net asset value, currently 24 per cent.

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