Individual shareholders put Alliance Trust board on notice

Alliance Trust has been given a year to get its house in order - not by Elliott Advisors, the activist hedge fund that mounted a high-profile campaign against the trust - but by its shareholders.

A number of the retail investors who own most of the £2.8bn trust subjected its board to a heated public grilling this week, making it clear that they too are running out of patience.

Investors booed and heckled the board as they aired several complaints at the trust's annual general meeting in Dundee - including lacklustre performance, a high discount to net asset value, and lossmaking subsidiaries - but the immediate trigger for their fury was a deal reached a day earlier with Elliott, depriving shareholders of a vote on its proposals.

Under the deal, two of three directors nominated by the hedge fund will be installed on the trust's board after Alliance management spent £3m of investors' money on a campaign to oppose their nomination.

"I'm extremely annoyed I didn't get a chance to vote on these directors . . . Suddenly we have got two people on the board whom we have not voted for," Colette Clenghan, a retail investor, told the board.

"What guarantees do you have that we won't find ourselves in the same position after next year's AGM?" she asked, to applause from her fellow shareholders.

Roger Lawson, deputy chairman of ShareSoc, a group representing retail investors, said he was "horrified by the amount of hot air and generally questionable allegations made by yourselves against Elliott", and asked if chairman Karin Forseke had considered resigning.

The board admitted it had reached the eleventh-hour compromise with Elliott when it realised a vote on the directors proposed by the hedge fund was likely to lead to a close result.

Since the activist investors launched their campaign in March, Ms Forseke said, "We have spent a considerable amount of time meeting and speaking to our shareholders, and we took away from these meetings that there needed to be improvement . . . There was a strong signal that action was required."

While Elliott's immediate demands only involved new directors, it has criticised the fund's costs, performance and high discount to net asset value, which currently stands at 11.3 per cent.

Alliance's total shareholder returns over five years fall short of many of its main rival trusts such as Foreign & Colonial, Witan and Scottish Mortgage. It boasts of 48 years of straight dividend increases, but at 2.44 per cent its annual yield remains modest. Unusually among trusts, it is managed internally rather than by an outside company.

Another investor, John Halley, said he had written to the trust's management "questioning what actions were being considered to realise more of the trust's asset value for shareholders" and received assurances that the board was considering all options. "That letter was sent 14 years ago," he said, to more applause.

Katherine Garrett-Cox, chief executive, overhauled the equities team last year, and returns have shown some improvement since then. She said the trust had been "incredibly resilient . . . in a world of increasing short-termism".

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Shareholders opted not to revolt when it came to voting: all resolutions, including the remuneration report, won more than 90 per cent support.

Analysts at Winterflood said that Ms Garrett-Cox and Ms Forseke are now "under considerable pressure to deliver within a relatively short timeframe" but that huge uncertainty remains over what role Elliott and the new directors may play.

Elliott has agreed not to speak out publicly against the management for a year, but Anthony Brooke, a former director of SG Warburg, and Rory Macnamara, a former director of Morgan Grenfell, are to join the board at its request, while Alliance will also recruit a third new non-executive director.

"Does any of this make Alliance Trust a more attractive investment? Not yet, in our opinion," the Winterflood analysts said.

The direct-to-consumer investment platform Alliance Trust Savings will seek to increase assets under administration from £6.4bn to £45bn over five years, potentially through acquisitions, its parent company Alliance Trust said.

Activist investor Elliott had criticised the lossmaking fund supermarket and urged it to seek economies of scale.

The target would bring Alliance Trust Savings (ATS) close to the current size of market leader Hargreaves Lansdown.

But Hargreaves' dominance means that ATS's options for a takeover could be limited. Hargreaves' closest rivals are Barclays Stockbrokers, with £14.9bn under administration, TD Direct, with £13bn, and Fidelity Personal Investing, with £10bn, according to data from The Platforum, a research firm.

Alliance also said it would seek to increase assets run by its asset management arm, Alliance Trust Investments, from £1.9bn to £10bn by 2020.

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