ALLIANCE Trust’s new chairman Lord Smith of Kelvin may win

political support for defending the 128-year-old trust from the threat of takeover and the possible loss of 250 jobs in Dundee.

It follows a proposal by 80-year-old financier Lord Rothschild for a merger between his £2.5 billion investment trust RIT Capital Partners and the £2.6bn Alliance, which has confirmed the approach but said it is informal with no detailed terms.

One leading analyst said yesterday it “makes pretty good sense” and could attract other potential bidders for the trust.

First Minister Nicola Sturgeon last year gave her backing to Alliance in its battle with US hedge fund Elliott Advisors, and yesterday Dundee MP and erstwhile SNP deputy leader Stewart Hosie said: “The SNP will be watching with interest to see how this develops. Alliance Trust are a well established, successful business and should a formal bid be received then of course it is only right to pay particular attention to ensuring that jobs in Dundee are not lost.”

RIT, which was spun out of the Rothschild banking family in 1971, made a total return of 23 per cent last year compared with Alliance’s nine per cent.

Last year a powerful body of shareholders backed activist investor Elliott, which holds 16 per cent of the shares, in its battle with

Alliance’s then leaders to land directors on to the board and overhaul the trust. Its success led to the

departure in quick succession of chairman Karin Forseke and chief executive Katherine Garrett-Cox.

Lord Smith, who on his appointment said he felt drawn to “an important business with a long and proud history in Scotland”, may now have to persuade shareholders that the turnaround is working.

Lord Rothschild’s fund declared last year it had a shareholding in

the trust of under three per cent, which prompted a rise in Alliance shares.

Ahead of the showdown between Elliott and Alliance, the first minister gave her backing to Ms Garrett-Cox in a letter that contrasted the short-term interest of hedge funds with the long-term interests of

Alliance Trust, and spelled out her support for the trust’s role as a contributor to the Scottish and the UK economy.

Mr Hosie said at the time that Alliance was “one of Dundee’s and Scotland’s greatest successes” and it was important that “the emotional heritage that is invested in the city and Scotland more broadly must be protected”.

Roger Lawson, director of ShareSoc, a shareholder group which supported Elliott, said yesterday: “Mergers of investment trusts can of course reduce overall costs as administration and investment management costs are spread over a larger asset base.”

Charles Cade, head of investment companies research at Numis Securities, said: “It all makes pretty good sense to me. I rate the RIT management team very highly and the fund’s growth and capital preservation focus should resonate well with traditional holders of Alliance Trust.”

Lord Smith will stress that the trust’s discount, of market value to asset value, has narrowed in the past year. But RIT shares currently trade at a premium of almost eight per cent to their asset value, compared with Alliance’s 10 per cent discount, due largely to the two trusts’ relative performance.

Mr Cade added: “Mergers are usually difficult to achieve, but helped by the fact that RIT is trading at a premium and the Alliance board is relatively new.”

He said it would now be “interesting to see if the board holds a beauty parade to consider other alternatives”. In April 2012, Aberdeen Asset Management tried to drum up shareholder support for taking over management of the fund.

Although Alliance’s performance has improved markedly since sustainable investment specialists Peter Michaelis and Simon Clements were appointed 18 months ago, RIT can point to the success of its strategy of investing over 40 per cent in unquoted equities and hedge funds, whereas Alliance has 95 per cent in listed equities.

After winning its battle with the trust 13 months ago, Elliott Advisors said it “appreciates the widespread engagement and support from fellow shareholders of the company and others”. When invited to comment on the appointment of Lord Smith as chairman in January, it declined to do so.