Alliance Trust chief gets a year to improve returns after hedge fund truce

Alliance Trust brokered a last-minute ceasefire with one of New York's most aggressive hedge funds which has been strident in its criticism of the management and sought to place three new directors on the investment trust's board.

Alliance, the Dundee-based investment manager, insisted the agreement to accept two of Elliott's proposed board appointments was a "compromise".

But some of its biggest institutional investors said it was a "partial victory" for Elliott and a "partial defeat" for the trust's chief executive, Katherine Garrett-Cox, who has come under fire for her investment record and may yet face a rocky ride at the group's annual meeting on Wednesday.

The investors also insisted it was a feather in the cap for Elliott's UK chief Mark Levine, the experienced American fund manager, who led the campaign, and argued that the trust's poor performance, high costs and excessive remuneration must be tackled by a stronger and more independent board.

One top 10 institutional investor in Alliance said Levine "recognised early on that he was not going to win this with aggressive American activist tactics of making a set of stringent demands and possibly even calling for the head of the chief executive. This was a clever campaign that sat well with institutional and retail investors in the UK."

The deal, which was reached over a long weekend of negotiations, means two of Elliott's candidates, Anthony Brooke, a former director of SG Warburg, and Rory Macnamara, a former director of Morgan Grenfell, will be invited to join the board of Alliance Trust.

Elliott said a third proposed candidate, Peter Chambers, would step aside from the process as Alliance Trust "wishes to set the criteria for its own search for a further non-executive director". It added that it would accept the company's open invitation to large shareholders to be consulted in that process.

However, the battle is not over for the 47-year-old Ms Garrett-Cox.

Elliott has made clear that she has a year - up until 2016's AGM - to bring about "tangible results and improvements" or she and her management team will be forced out.

Alliance's total shareholder returns over five years fall short of many of its main rivals such as Foreign & Colonial Investment Trust, Witan Investment Trust and Scottish Mortgage Investment Trust.

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Elliott, which has built up its stake in the trust to 12 per cent to become the biggest shareholder, was backed by three other large institutional investors: Aberdeen Asset Management, Legal & General Investment Management and wealth manager Brewin Dolphin. It also won over the support of some of Alliance's 60,000 retail investors, which make up 70 per cent of the shareholder base.

Although Alliance had the support of another big investor, DC Thomson, the Dundee-based publishing company best known for producing The Beano and The Dandy, its support gradually dwindled over the course of the campaign.

James Maltin, investment director of wealth manager Rathbones, which also has a stake, said: "Overall, we have broadly been in support of Elliott. This is good for Alliance Trust as it will strengthen what has been a sleepy board into what we hope will be a much more effective one."

Tim Ingram, who was forced off the board of Alliance in 2012 and is now chairman of the Wealth Management Association, added: "It is sad that Katherine Garrett-Cox and the company had to come out and so venomously attack their biggest shareholder in what was a bitter campaign. But it is a good result."

It is certainly a good result for Elliott, which has learnt from past mistakes in Europe, notably over its aggressive and failed campaign to shake up Swiss biotech company Actelion. The campaign against Alliance was more measured, said investors, presenting shareholders with clear and simple facts over its poor performance and inflexible costs.

The battle with Elliott was the second time Ms Garrett-Cox has been forced to see off a challenge from activist investors, following the 2012 spat with Laxey Partners.

The top 10 investor said Ms Garrett-Cox would not get another chance. "She has done well to defend her position twice. But she has to produce now. There won't be a third time," he said.

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