Experts give cautious welcome to Alliance’s major overhaul

Experts give cautious welcome to Alliance’s major overhaul

Analysts and campaigners have cautiously welcomed the series of reforms proposed by the embattled Alliance Trust last week.

The trust announced a package of changes on October 1. These include the introduction of a fully independent board, a commitment that Alliance Trust Investments (ATI) managers will run the portfolio for 35bps (basis points), and the usage of an MSCI All Country World index benchmark.

Chief executive Katherine Garrett-Cox will remain in charge of ATI but is stepping down from the main board, while the 35bps mandate means the trust will target ongoing charges of 45bps or less by the end of 2016.

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The measures follow the recent battle with activist shareholder Elliott Advisors ahead of this year’s annual general meeting, when it agreed to install two of the three non-executive directors proposed by Elliott.

The reforms have prompted positive responses but also some criticism.

Investment Adviser understands that while Elliott sees the shake-up as an important first step in overhauling the trust, it remains more concerned with an improvement to short- and medium-term performance and a narrowing of the discount.

Others have also given a guarded welcome to the proposals. Numis Securities, which has been critical of the trust during its battle with Elliott, said the changes were “more radical” than it had expected.

But analyst Charles Cade is among those warning that if performance is not maintained, these reforms merely represent a stay of execution for the trust.

Poor performance would make it “increasingly difficult for the board to ignore calls for more radical action”, he said, noting that Elliott has increased its stake to 14 per cent in recent weeks.

“Alliance must now perform and the outperformance since the change last year is encouraging. The problem for a long time has been a lack of consistency and therefore it is critical the company can finally deliver a sustained improvement in performance.”

Charles Stanley’s Stephen Peters, meanwhile, labelled a performance target of index plus 1 per cent (net of fees) “unambitious”, saying: “I’m not convinced that’s what I want from an investment trust.”

The reaction of some analysts suggests the trust’s conversion into what is intended to be a low-cost global equity vehicle also requires more explanation.

Alliance Trust has emphasised its socially responsible investment (SRI) focus in recent months, but Panmure Gordon analyst Charles Murphy said the trust now acknowledges it has “botched” its attempts to communicate its process.

“Alliance Trust’s portfolio is not constructed on an SRI basis. Sustainable relates to the quality of the companies and [the trust] acknowledged that this was an issue that needed to be addressed,” said Mr Murphy, who broadly backs the proposed changes.

The Alliance Trust Shareholder Action Group (ATSAG), meanwhile, is calling for more work to be done on the trust’s discount.

It said: “The comments regarding discount policy and the active use of share buy-backs are not as positive as ATSAG would have liked to have seen and may not have much influence on the current high share price discount to NAV (net asset value).”