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Broker backs Alliance Trust but can't guarantee full support

Alliance Trust won an ally in its defence against activist investors last week, but the public show of support from broker and wealth management firm Brewin Dolphin may be less of a boon than thought.

 
Broker backs Alliance Trust but can't guarantee full support

Alliance Trust won an ally in its defence against activist investors last week, but the public show of support from broker and wealth management firm Brewin Dolphin may be less of a boon than thought.

Embattled Alliance Trust won the much-needed support of Brewin's investment trust research team ahead of a crucial vote on how the trust will be run which is due to take place at the annual general meeting on 20 May. Although clients of Brewin Dolphin own 5% of Alliance Trust , neither they, nor their client managers, will be compelled to vote in-line with the Brewin house view supporting Alliance Trust. Therefore the actual number of Brewin clients and managers who will follow the recommendation remains unclear.

The debate centres on how to reduce the gap between the value of the trust’s shares and the assets it owns. Alliance Trust shares had been trading around a 18% discount to net asset value. The activist hedge fund, Laxey Partners, is spearheading the campaign to impose a discount control mechanism that would force the trust to buy back shares if the discount widens beyond 10%.

In a statement Brewin said that the discount had already narrowed by more than 3% representing over £70 million of shareholder value. 'For Alliance to have taken this initiative themselves, albeit after a nudge, shows that such action should be in the best interests of shareholders, rather than for the Trust to be backed into a corner. We hope that Alliance will continue with this new policy, as they have pledged.'

John Newlands, head of investment company research at Brewin, said that despite having a house view, clients were able to vote however they want via Brewin’s share holder voting service. ‘There’s a selection of views among our clients and they have the right to vote their shares as they see fit.’

He also said that client managers, who can vote on behalf of clients, were not obliged to follow the house view either adding: ‘We have a selection of views, widely divergent views on this and we are not forcing anybody to subscribe to the house view.'

Newlands pointed to Alliance’s ongoing share buy-back programme saying that 750,000 shares were bought back by the trust on Thursday, and said: ‘I wouldn’t be surprised if there were several more before the AGM.’

But Colin Kingsnorth, co founder of Laxey Partners, said: ‘The question is whether you believe they [Alliance] will carry on [with the share buy-back programme] when the pressure is not there.’

He said that the recent share buy backs were the first of their kind in the trust’s history: ‘So don’t take your foot off the pedal because there’s a potential that when someone hasn’t put a resolution forward, they won’t do anything. And they’ve been approached by bigger share holders than us in the past.’

Brewin’s announcement of support came as Laxey Partners published research to support its argument that Alliance must buy back shares to return value to its investors.  Sharesoc, an organisation which supports individual investors, also last week said it supported Laxey Partners' proposals.

The combined holdings of Brewin’s clients come in at more than the combined stakes of the two largest activists on the share register – Laxey Partners (1.7%) and Elliott Advisors (3%).

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