Investors attack Alliance Trust's last-minute truce with Elliott

Booing investors in Alliance Trust attacked its board for spending £3m fighting proposals from activist hedge fund Elliott before reaching a last-minute truce on the eve of a pivotal annual meeting.

One of the group's many retail investors who had travelled to Dundee for the gathering, said the eleventh-hour deal with Elliott to appoint new independent directors carried a "horrible whiff of smoke-filled rooms". "You've done a deal and it's cost us a lot of money," said John Stein, the investor.

Karin Forseke, Alliance's chairman who had previously urged shareholders not to support Elliott, admitted the ceasefire was "seen as a U-turn" and had been agreed after realising the trust might not have won over enough support to vote down the plan.

"The cost of defence is significant," she said. "I can assure you it is a cost that we would rather be without, which will be borne by all of us as shareholders.

Investors' hostility was not just directed at Alliance.

Anthony Brooke, a former director at SG Warburg and one of the two Elliott nominees that will join the trust's board, also sparked angry responses when he admitted he had "no knowledge of Alliance Trust other than what I've read in the press".

"That was not a sensible thing to say," said one institutional investor. "It does not promote a great deal of confidence in the new team when one of them comes out with such a statement."

Alliance staved off a shareholder revolt over pay, even though Elliott had criticised chief executive Katherine Garrett-Cox's remuneration, which has doubled in five years to £1.4m. Her fixed pay is more than the chief executive of Henderson, a much bigger and better performing listed asset management group.

More than 93 per cent of votes were cast in favour of the trust's remuneration report. Without the support of Elliott it would only have secured 68 per cent in favour as the turnout was low.

Elliott argued that Alliance Trust's performance had fallen short of rivals', that its costs were excessive and that it needed better governance.

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Ms Garrett-Cox promised to improve performance and said the trust's two lossmaking subsidiaries would seek rapid growth in assets, potentially through acquisitions. She admitted performance had been "mediocre in the long term".

Ms Forseke said the trust was "totally focused on ensuring we are not going to find ourselves in the same situation again".

She said the £3m spent on fighting Elliott, which holds 12 per cent of the trust, was similar to the amount spent successfully fending off an attack by fellow activists Laxey Partners three years ago. She insisted the deal with Elliott had restored stability at the 127-year-old trust.

Some big institutional investors questioned whether Ms Garrett-Cox would be able to turn round performance in the year she has been given by Elliott.

The hedge fund has agreed not to agitate publicly for change at the trust for at least that long after Alliance said it would add Mr Brooke and Rory Macnamara, a former director of Morgan Grenfell, to its board and seek another additional non-executive director.

Peter Chambers, a former head of Legal & General Investment Management whom Elliott had also put forward, stood aside from the process on Tuesday.

James Maltin, investment director at wealth manager Rathbones, which has a 2 per cent stake in Alliance, said 12 months was "a very short period of time to improve performance. Whether she can do this or not will be down to a lot of luck and circumstance."

A top 10 institutional investor, who did not want to be named, added: "I think Ms Garrett-Cox has to be brutal and shake up her investment team, which probably means looking for external hires rather than using in-house people. There is also still some concern over her change in strategy to a more sustainable investment approach last September."

Alliance Trust has underperformed its benchmark index over the past five and three years. However, its performance has shown improvement in recent months.

Its 60,000 retail investors, some of whom inherited their shares from past generations, hold 70 per cent of the trust.

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