Since one of Alliance Trust's (ATST) largest shareholders, Elliott Advisors, proposed three new board members in March, a war of words and counter charges has been waged by the two parties. Alliance Trust is urging shareholders not to vote for Elliott's proposals at the annual general meeting (AGM) on 29 April.
"We have put together a diverse board that looks to candidates' skills and experience, but also shared values," says Karin Forseke, chairman of Alliance Trust. "That is a very thorough process: for example, with Gregor Stewart, who joined us last year, we started the process after the AGM in May, but he did not come on board until December. It is a long process that requires regulatory approval as we are also a regulated bank. It is also important to define independence.
"We take all these criteria into consideration, but feel that Elliott, by going via a head hunter, has circumvented these. Even if they did not pick the candidates themselves they will have instructed the headhunter, so they cannot be independent."
Ms Forseke also feels that Elliott's aims are at odds with those of shareholders. "Elliott in meetings always had a clear request: a 40 per cent tender offer, divestment of our subsidiaries and the scrapping of the dividend," she says. "That is what they said to me repeatedly, but the dividend matters to most of our shareholders."
Elliott is concerned that Alliance Trust's subsidiaries, Alliance Trust Savings (ATS) and Alliance Trust Investments (ATI), are lossmaking, arguing that ATS only generates a profit after excluding certain expenses. Read more on this
However, Ms Forseke says the subsidiaries only account for 2 per cent of net asset value (NAV) and that ATS is not lossmaking. She says that it is worth keeping ATI because growth in the business is strong following the expansion of the platform market after the Retail Distribution Review and pension reform, and it has had a lot of interest.
"We have set ourselves tough targets," she adds. "ATS has £7.3bn under assets now and we are looking to grow that to £45bn by 2020. With that growth ahead, why not enable shareholders to take advantage of that real possibility going forward?"
Karin Forseke CV Karin Forseke joined Alliance Trust's board in March 2012 and became chairman in April 2012. She was deputy chairman and senior independent director of the Financial Services Authority until July 2012, a non-executive director of the Royal Opera in Stockholm until April 2012 and non-executive director of Eniro AB until April 2011. Ms Forseke was chief executive officer of D Carnegie & Co AB from 2003 to 2006 and chief operating officer of the London International Financial Futures and Options Exchange (LIFFE) from 1996 to 1998. She has also held positions as head of distribution for Westpac Banking Corporation's Financial Markets Group in London and director of business development for the OMLX Exchange in London. |
ATI, meanwhile, can take in third-party assets, unlike the investment trust. "ATI has £2bn of third-party money in assets under management and great interest because there is more demand for environmental, social and governance (ESG) sustainable investments from pension funds, charities and younger investors. We have a pipeline of prospective institutional clients.
"ATI is not yet profitable, but will be by 2016-17. As we see more interest in ESG we will grow with that: ATI is a longer-term investment."
She adds that having one team running both the trust and ATI's funds creates synergies. "The benefits of self management are that we have a fixed cost base, but the more the assets grow, the more in proportion the costs come down," she says. "If we outsourced the management this would not be the case."
Elliott would like the management to be outsourced to a third party on the grounds that this would both improve performance and cut costs.
"If you deliver performance, cost is secondary," says Ms Forseke. "And if we were to outsource we would need to find a team that could deliver better performance over time, and there is no obvious answer to this when we have a world-class team in house."
She argues that, although Alliance Trust has historically underperformed the Association of Investment Companies (AIC) Global sector average, it has beaten it over six months since the new management team has come in. "The performance of the team is coming through," she says. "Shareholders have to ask themselves what kind of investment they want? We offer steady growth in the capital and dividend, with low risk. And our shareholders' main interest is in whether the share price and dividend have increased every year."
She says the equity portfolio has outperformed the MSCI All Country World Index over one, three and six months, reflecting the time since Peter Michaelis became head of equities and Simon Clements was appointed to manage the equity portfolio.
Read our interview with Mr Michaelis
The trust overall has not beaten index benchmarks over longer periods. However, Ms Forseke argues that you can't compare the trust with an index because its return includes unlisted investments such as mineral rights. "It is not just an equity portfolio - that is the wrong comparison - and we offer potential upside with the subsidiaries," she says. "Comparing it to an index is like comparing apples and oranges."
Equities account for 97 per cent of gross assets, which total 111.7 per cent due to gearing (debt) at the end of March.
Alliance Trust's discount has consistently been in double digits, and is wider than its sector average. It is currently at around 12.7 per cent, and one of Elliott's concerns.
"We spend a lot of time on the discount, but the number one factor that will reduce this is performance," says Ms Forseke. "Discounts lag performance, which has picked up with the new team and, as this continues, the discount should narrow. A big buyback - as Elliott would like us to do - might bring it in temporarily but it would just go back out again because it is not fixing the root cause of the problem. Big buybacks only help those wanting to exit, and in any case we have a flexible buyback policy in place.
"Our shareholders also don't want to see discount volatility: we focus on this and have reduced it."
Elliott has raised concerns about the remuneration of Alliance Trust's executives. Ms Forseke says they are transparent in the report and accounts, and shareholders know what chief executive Katherine Garrett-Cox is paid. "You would not see that if we outsourced the mandate," she says. "We pay the going market rate and feel, on balance, that it is right. It is good to attract high-calibre people."
