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Alliance Trust attacks Laxey’s demands as Aberdeen circles

Alliance Trust has clashed with rebel shareholder Laxey Partners over its latest campaign to shake up the £2.1 billion global investment trust.

Alliance Trust attacks Laxey’s demands as Aberdeen circles

Dundee-based Alliance, whose chief executive is Katherine Garrett-Cox (pictured), has struck out at demands from shareholder activist Laxey Partners to boost the trust’s investment performance as ‘short-term’ and driven by self-interest.

The investment trust is under pressure from Laxey, a hedge fund, to outsource its fund management and narrow the average 14.5% discount at which its shares have traded at over the past year.

Rival investment groups are poised to throw their hats in the ring should Laxey's campaign provide a chance to take over Alliance. Martin Gilbert, chief executive of Aberdeen Asset Management, which runs Murray International , a popular rival to Alliance, told the Daily Telegraph: ‘Aberdeen would love the opportunity, if the board ever did put it out to tender, to pitch for the trust.’

Laxey’s original calls for Alliance to commit to automatic share buy-backs when the discount rose above 10% were rejected at last year’s AGM. However, the trust subsequently bought back £246 million, or 10.3%, of its shares in 2011, and Laxey was seen as having won a moral victory.

Laxey's latest campaign has exasperated Alliance. Today it fought back, urging shareholders to vote down Laxey’s proposals at its annual general meeting on 27 April.

In a letter to shareholders the trust claims that Laxey's latest proposals will not benefit investors over the medium and long term, and points out that it is committed to share buy-backs and increasing payouts, having made its biggest dividend increase in 20 years of 7% in 2011. It claimed Laxey's AGM campaigns would cost it a total of £2.5 million.

Karin Forseke, chairman of the Alliance Trust, said: ‘We are disappointed that Laxey has requisitioned the board again, having been convincingly defeated last year.

‘This persistent requisitioning wastes shareholders’ money and demonstrates Laxey’s short-term attitude to its investment. The board believes strongly that this resolution is not in the best interests of all shareholders.’

Laxey rejected this criticism. 'It is good to see they admit the success of our proposals to buy back shares and made £40 million for shareholders over the last financial year. How they have spent £2.5 million defending proposals they have then executed seems extraordinary but at least shareholders are vastly better off for the whole exercise.'

It welcomed Aberdeen's interest, saying Murray International's performance was 'vastly superior' to Alliance's and that its shares consistently traded at a premium. Commenting on a possible takeover of Murray for Alliance, Laxey said: 'What an upgrade for all shareholders that would be!' 

George Crowe, investment companies research analyst at Numis, said Laxey's demands had been a mixed blessing for Alliance shareholders. ‘It will take time to change investor perceptions towards the stock, but in 2011 the fund outperformed its peers and it now has a much clearer strategy, in our view.'

He added: 'The upside is that if Katherine Garrett-Cox can deliver improved performance over the next few years, there is the potential for shareholder returns to be enhanced by a narrowing discount. The fund is never going to be an investment that “shoots the lights out” in a rising market… but then again that is not what Alliance Trust is trying to achieve.'

18 comments so far. Why not have your say?

Cape Town

Apr 03, 2012 at 18:42

What is the value of Laxey's interest in 3i? IT is a hedge fund and which way is it betting? How much leverage in these bets? PEhaps it is trying to widen the variances in share price and play on these.

Laxeys are involved in 3i Investment Trust in a similar way.

At all events, if they can narrow the discount - I guess this is what brought htem in in the first place - then it has to be a good things for shareholders. Shareholders hve been deply disspointed in recent years and are probably looking for an exit from an inventment led by a visionless team who demonstrate no tangible interest in creating value for their shareholders.

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Apr 03, 2012 at 20:21

In view of Alliance Trust's mediocre performance in recent years, why is the yield a lowly 2.5%%? Also, why has management's remuneration been allowed to rocket upwards with such poor performance?

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Johnny Boy

Apr 03, 2012 at 21:55

Although only a modest investor in Alliance Trust I have been investing with considerable success through Alliance Trust Savings, their dealing platform, for many years and the service provided has been superb and at very modest cost. Granted both the capital and income growth of Alliance Trust itself has been poor over the last decade or more but at last the management do seem to be waking up to the fact and taking determined action in terms of staff recruitment and focus. So lets at least give them a little more time to turn this giant ocean liner round.

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Apr 03, 2012 at 23:22

Like Johnny Boy, I have used the ATS platform for many years for SIPP and PEP/ISA, and it does all I require. If Alliance Trust stands at a discount, as a long term investor I couldnt care less - it merely gives me an opportunity to buy more shares cheaply. The last thing I want is for the company to waste surplus funds buying in shares and thereby making the trust smaller. If there are surplus funds, they would be better employed increasing the payout ratio. As Lairdolossie says, the dividend yield is too low related to the rather staid growth performance. But Alliance Trust is what it is - and if such as Laxey Partners want somethjing different, there is ample choice within the investment trust sector. Their only objective can be to make a short term profit, they are not the least bit interested in the longer term objectives of private investors such as myself. So go away and play somewhere else - leave us private investors to use and understand Allliance Trust. Having said that, there is no reason why Katherine Garrett-Cox cannot try to improve the investment performance somewhat - and there are signs she is doing that. The Board can take steps if she doenst. But if I want Murray International management, I can buy Murray International (which I do in fact hold within my ATS wrapper!). And I can in due course reduce my holding in Alliance Trust. Its a free country! But I know what it is, and do not wish to reduce at the moment. So go away Laxey Partners, take your short termism elsewhere.

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g hen

Apr 04, 2012 at 10:04

Alliance Trust is a big employer in Dundee and is very important to the general prosperity of the town--when many of the traditional industries have gone for ever.

My problem however with these so called mutual companies including building societies,is that the management tend to exploit the shareholders by paying themselves huge salaries and pensions for zero risk and poor investment returns.

Shareholders lack a united voice and as such can easily be manipulated.

It is a pity that decent people cannot unite together to put pressure on these fat cat mutual directors rather than vultures like Laxey Partners.

G Henderson

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Apr 04, 2012 at 10:21

I've been an 'Alliance' holder for over 10 years and have, since the passing of the 'old guard', been unhappy with the developments which accelerated with Harding, namely, increasing the overall remuneration of the top employees by more than inflation and vastly more than the dividends paid to shareholders. This has continued under Cox. Bearing in mind the cost of living in and around Dundee, they pay themselves extremely well. which is not reflected in the performance of the 'trust'.

As to IT discounts, I tend to think that, unless we are talking about a 'star' performer, or, alternatively, a real 'dog', a 10% discount is realistic. That level of discount takes into account that winding up an IT not only incurs costs but also that the underlying shares owned will fluctuate in value during the wind-up.

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Apr 04, 2012 at 11:20

Cambie, Yes Alliance trust is what it is - a non performing long term hold.

And yes Katherine Garrett- Cox could try to turn it around in fact she has probably been trying for 5 years. Look at facts. If you had invested in AT five years ago just before KGC was recruited AT's closing price was £3.70. Five years on to the day the closing price last night was £3.69. Now do the same for Murray International and find that a £10 grand investment five years ago would be worth £15676 - 57% more than what you bought it for. Oh by the way Murray also pays higher dividends.

So you see I reckon quite a few of us would welcome Aberdeen with open arms. Ironically after Laxeys campaign for share buybacks lat year AT did embark on a massive buyback campaign throughout 2011. My own estimate is around 12% of shares bought for cancellation. So improvements to recent performance are to some extent down to Laxey in my view.

I also wonder how AT can claim to be in the lower quartile for Total Expenses Ratio when the audited accounts clearly show Admin expenses and finance costs over £40m which by my reckoning is 2% of a £2B fund not the headline figure of 0.65% quoted. The 0.65% figure only accounts for around £13M. Seems like another £8 million was used to subsidize the loss making Investment Fund division and AT Savings. Perhaps our new Chairman could explain what happened to the other £19M.

As I see it an advantage of an external investment manager that Laxey is proposing is that they are usually engaged on a 6 or 12 month rolling contract and so have a clear incentive to succeed or face eviction.

Finally I do have one positive note to makeand that is AT was not the worst performing fund. Trustnet puts AT them as 22nd out of 32 for 5 year NAV preformance and 20th out of 32 for price performance. Just imagine where they would have been without buybacks.

I will vote with Laxey. Not, unfortunately, that I think they will win but as a way of registering my disapproval.

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Apr 04, 2012 at 14:07

If you want to own Murray, then buy it. If not happy with Alliance then for heaven sake 'sell it' What I can not understand why is why whinge-on? Not really rocket science is it?

Laxey, well they only have one interest, themselves.

Like others have commented I have been with Alliance for years and am a great fan of the tradind platform. My holding of Alliance amounts to approx 1.5% of our total holdings with them

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Apr 05, 2012 at 08:42

And yet again (as in other forums) people are confusign ATST with ATS. ATST is the parent who offers a financial crutch to ATS (the trading platform).

I completely agree that the Board gets huge payments for mediocre roles and performance. As for recruiting quality staff - the board has seen a 50% change in the last few months, ATS have lost 2 very expensive CEOs in the last 4 years (with very significant payouts, recruitment costs and bonuses), they have lost their marketing director who was really starting to get the ATS name out there.

With regards to the Trust - as has been noted their share price has not moved over the last few years and it was only as a result of the Laxey action last year, did ATST start to buy back shares - albeit to very little real effect!

I say, lets support Laxey for a complete review of the Trust & the Group with a view to outsourcing the investment strategy and review the loss making subsiduaries.

As a finishing note - Perhaps KGC should consider focussing her efforts on the company that provides her & her family with a very priviledged lifestyle and walk away from the external distractions - perhaps that way as Chief Investment Officer she can steer the company back to something decent!

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David Tennant

Apr 05, 2012 at 11:21

Go away Laxey!

Go away switch of strategy to outside management.

Give the current management time to settle in and get AT back to what it used to be : A core holding that never shone but never let me down. I hold Murray International and other whizz kids for the chance of making a profit, I hold AT as a safety net. OK I cut back my holding of AT a few years ago but not because of the discount. Why do the children get so hung up on discount? I buy at a discount, I sell at the same discount -nothing lost! If I make or lose on the discount its all part of the game. What I am very reluctant to do is buy at a premium so AT suits me well and ATS is a real winner.

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Apr 05, 2012 at 11:44

David Tennant could not have put it better! Laxey are only interested in a quick buck, and couldnt care less about the long term private investors. Investment trusts are a broad church, you can chose what you buy. If the children don't like discounts and premiums, they can go away and buy unit trusts - good luck

to them!

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g hen

Apr 05, 2012 at 12:04

If David Tennant and Cambie think that the Board of Alliance Trust cares about them then they should look at the salaries/bonus/pension etc that these Directors are paying themselves-----I think that they would change their opinion.

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David Tennant

Apr 05, 2012 at 15:14

I think the total remuneration paid to many people in management is obscene but that's a different issue and not for these pages. It does mean however that AT cannot afford, overnight, to pay less than the current market rate even though that be crazy.

Whilst the Directors may not care about me they must surely care about their image and association with a winner rather than a loser.

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Apr 07, 2012 at 14:35

This forum is not a silly game about buying unit trusts for children. It is about giving fellow investors a platform to express opinions.

Whether Laxey is a hedge fund or not I don't really care and if Laxey benefits from closing the discount then so will other shareholders too.

It is the prerogative of all shareholders to pressure management to cut losses and improve performance during indifferent times and that's what Laxey is doing.

Personally, I want a higher NAV, a lower discount, a successful trust - not a failing investment that investors apparently prefer to sell rather than buy.

What I want to see IN THE SHORT TERM are management initiatives which will put us back on the right road. No ifs, No buts, No posturing - just visible action. A sizeable yes vote for Laxey will keep the pressure on management to abandon failing policies and look at adopting new initiatives. But if you want to keep your head in the sand or simply don't agree with Laxey then you quite simply don't have to vote for them.

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Apr 07, 2012 at 14:52

Laxey are a white knight - sure they seek to make a turn for themselves; and why not! But what I find totally amazing is that there are more posters here supporting AT than supporting Laxey.

These posters are prepared to hold a trust with lamentable performance! It would seem there is truth in the old adage that "You can take a horse to the trough - but you can't make it drink!"

Can anyone explain why these AT supporters are investing in the stock-market. They seem totally naive as to what to do to achieve the best performance; perhaps they are oblivious to the whole concept of "performance". Yet another true old adage - A fool and his money are easily parted...

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Apr 10, 2012 at 09:33

Nick, I suspect they are very conservative, risk-averse, 4th generation IT holders, who have not grasped the opportuinities that exist.

AT have a large shareholder base of individual investors that have been with them for generations - if it was not for those people, the Trust and Board would have been ousted a while ago. It is only now that the larger shareholders are takikng a hold AND Advisers are starting to look at ITs (as a result of RDR) that AT is starting to come under some scrutiny. Thank Heavens!

The 'buy and hold' brigade will probably continue to defend their 'family' to the detriment of everybody else.

Whilst not a fan do hedge-funds, activists or hostile take-overs (in the main) I am very supportive of the actions taking place against ATST for change to be initiated.

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Apr 10, 2012 at 12:34

AND - as a note to those who have commented on the forum contributors and what they should do - can I suggest, that like many many others, some of us will have been persuaded by Katherine the Great, that the Trust will perform well, exceed benchmarks, return increasing shareprices as well as dividends and reduce costs - oh - and that the subsiduaries would deliver profit!

NONE of which has been realised - hence our grievances. Oops - sorry - we have had increasing dividends in an attempt to keep us quiet!

Most management get paid for results - in this case - there should be NO bonuses or salary increases for ATST Board members or staff - until they actually deliver what tjhey have promised.

The culture of rewarding underperformance and failure needs to stop and by outsourcing management - this would be the case - actual accountability!!

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Apr 10, 2012 at 17:49

GLucie - Bang-on - 100% agreement.

Personally I find the quoted hedge funds to be a very useful grazing ground - but then, I'm not a conventional "innocent abroad" private investor!

One hedge fund opportunity at the moment offers great, low risk upside - 15%-20% over the next 12months by my calcs. This fund-of-fund hedge fund is in liquidation so everything is pretty transparent and the game-changers are that fellow activist WEISS three weeks ago took its stake up to the max of 29.9% and just last week Peter Spiller's Capital Gearing Trust bought a 7.2% stake.

The stock is SIGG. Weiss paid 77p to increase its stake and CGT paid just 72.5p. Current NAV in corporate and distressed debt (a boom market at the moment) is 90.2p. Assuming a 5% liquidation discount to 85.7p and an average redemption date of 30th Jun'13 (c60% likely before then and 40% thereafter - according to the company's Strategic Update); then at 72.2p the Gross Redemption Yield ("GRY") = 15%.

No reason why the payout shouldn't be more than that 85.7p. If we hit the current NAV of 90.2p then the GRY would be 20%!

I made a top-up today @ 72.2p

Needs a bit of research as this isn't your normal PI play - if you go there you'll find pretty well all the facts and stats on the ADVFN B/b:

Make money out of this and perhaps we'll keep in touch...

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