Alliance Trust shakes up mandate to meet shareholder demands

Alliance Trust's chair Karin Forseke, in a letter to shareholders on Thursday (1 October), announced a number of changes to the £2.5 billion global trust's investment mandate, strategy and board, all of which she says are designed to 'enhance shareholder value'.

Alliance Trust's investment mandate has been awarded to the trust's subsidiary, Alliance Trust Investments (ATI), at a rate of 35 basis points on average net asset value (NAV). This means that the current team, headed up ATI's Peter Michaelis, will continue to manage the trust, however in a slightly reorganised structure.

Alliance Trust will also adopt a new benchmark, the MSCI All Country World Index (MSCI ACWI), targeting a 1% per year outperformance net of fees.

However, in a nod to the concerns recently raised by shareholders and prompted by a public war of words with activist shareholder Elliott Advisers, in the event that performance does not consistently deliver against the new benchmark Forseke says a full review will be undertaken and external managers considered.

According to Forseke the current team has outperformed since its appointment in September 2014, with the trust's equity portfolio outperforming the MSCI ACWI by 2.3% since Michaelis and equity manager Simon Clements took over with a new sustainable and responsible investment (SRI) mandate.

Commenting on the changes, Forseke says: "At our interim results in July, I acknowledged that the first half of 2015 had been a particularly challenging period for Alliance Trust. In the run up to our annual general meeting (AGM), many of our shareholders indicated that they sought change.

"We have carefully considered the feedback we received and this is reflected in the changes we have announced today."

Other changes include reduced costs, with the board targeting an ongoing charges figure (OCF) of 45 basis points or less by the end of 2016 (the OCF stood at around 60 basis points in 2014) and a commitment to use share buybacks in order to narrow the trust's persistently wide share price to NAV discount.

As of 30 September, the trust's discount stood at 12.4% compared to an average of 4.5% for the global sector, however this morning's announcement has seen shares rise 3.2% to 473p, which Numis Securities says represents an estimated discount to of 9.6%.

Board independence

Forseke says Alliance Trust's board will also be reorganised in order to make it fully independent. In the future the board will consist solely of non-executive directors, which means the trust's expensive chief executive officer Katherine Garrett-Cox will step down from the board, although she will remain the CEO.

New boards will also be created for ATI and Alliance Trust Savings (ATS) in order to "increase focus and accountability".

Garrett-Cox's involvement with the board, her disproportionately large pay packet and the loss making nature of the trust's subsidiaries were all key concerns raised by shareholders before the most recent AGM.

The changes follow recent additions to the board prompted by Elliott's aggravations, which were first initiated in the spring. The firm also recently increased its stake in the trust to 14%.

Investment trust broker Numis Securities welcomed the changes, stating that they were "more radical" than it had expected and were likely to be welcomed by shareholders.

"In our view, Alliance Trust starts to look like it is on an attractive valuation in light of the changes announced today. It is still early days to assess the performance of the equity portfolio under Simon Clements, but it is encouraging that it has outperformed to date.

"There will continue to be pressure on the team and if the SRI approach fails to deliver a sustained improvement in performance it will become increasingly difficult for the board to ignore calls for more radical action. Furthermore, Elliott Advisers has added to its position in recent weeks and now holds a stake equivalent to a value of £365 million."