Alliance Trust Bows to Hedge Fund Elliott as CEO Steps Back

  • Firm `open' to using external fund managers to oversee assets
  • Trust commits to buybacks to reduce discount to single figures

Alliance Trust Plc Chief Executive Officer Katherine Garrett-Cox will step down from the board as the Scottish firm bows to pressure from hedge fund Elliott Advisors to restructure the company to boost performance.

Garrett-Cox will remain CEO of Alliance Trust Investments, or ATI, as the parent company’s board moves to become completely non-executive, a statement showed Thursday. Chief Financial Officer Alan Trotter has decided to leave as the Dundee-based money manager announced a cost-cutting program and share buybacks to narrow the discount of the stock to its net asset value. The shares climbed.

“These changes are more radical than we had expected,” Charles Cade, an analyst at Numis Corp., wrote in a note to investors. “It is not quite clear where the changes will leave Katherine Garrett-Cox in the long term. Her influence over the board has been significantly reduced.”

Garrett-Cox and Chairman Karin Forseke faced angry shareholders at their annual general meeting in April after revealing 3 million pounds ($4.5 million) had been spent fighting Elliott, their largest investor. The New-York based hedge fund wanted to add three more independent directors to the board of the 127 year old Scottish investment trust to bolster performance and help reduce the discount, currently at about 12.4 percent.

“In the run-up to our AGM, many of our shareholders indicated that they sought change,” Forseke, said in the statement. Today’s actions “represent some of the biggest changes in our history and are designed to further improve shareholder value,” she said.

Performance Review

The board set a new mandate for Alliance Trust to only invest in global equities and sell unwanted assets including fixed income and property. They’ve also created a management-engagement committee headed by newly appointed director Karl Sternberg to review ATI’s investment performance regularly.

In a departure from Alliance Trust’s previous stance, the firm also said it was “open” to the option of using external investment managers in the future -- a point of contention raised by Elliott this year and Laxey Partners three years earlier. For now, the trust is sticking with its current investment team, which includes head of equities Peter Michaelis.

Cost Cuts

Other changes include a cost-reduction target of 6 million pounds for 2016 and a commitment to buy back shares to help narrow the discount to NAV into “single digits.” The firm had previously rejected proposals by U.K. hedge fund Laxey Partners in 2011 to introduce a share-buyback formula to stop the firm trading at more than 10 percent below NAV.

“We see this as step one in an evolutionary process,” Roger Lawson, deputy chairman of lobby group ShareSoc, said in a statement. “But it is not clear that these changes will quickly make the Trust more attractive to investors, or ensure that Elliott Advisors do not come back with more demands.”

Elliott agreed in April that it would not "seek to agitate" the board publicly until next year’s AGM. The hedge fund has since increased its stake to more than 14 percent, up from about 12 percent. A spokesman for Elliott declined to comment when contacted by Bloomberg News.

Alliance Trust shares rallied 2.6 percent to 470 pence at 1:06 p.m. in London, boosting the firm’s market value by 65 million pounds.

The board has faced criticism from investor proxy groups, including Pensions & Investment Research Consultants Ltd., over Garrett-Cox’s salary and total compensation package of 1.3 million pounds. Numis’s Cade said Thursday he assumed the new role would be reflected in her pay.

Susan Noble is also stepping down from the board to become chair of the investment unit, following the appointment of Chris Samuel and Sternberg last month. Two of Elliott’s nominees, Anthony Brooke and Rory Macnamara, were hired in April.

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