ELLIOTT Advisors has re-iterated its stance that Alliance Trust has underperformed while the Dundee company's corporate broker suggested shareholders' patience will wear thin unless investment performance improves in the next few years.

In a response to a recent shareholder circular Elliot, which has a 12 per cent stake in the Scottish business, laid out several areas where it feels Alliance Trust can be enhanced and outlined why it believes chief executive Katherine Garrett-Cox and chairman Karin Forseke are overpaid.

Along with that JP Morgan Cazenove, Alliance Trust's broker, said in a note that while management have "major steps" to tackle the "lacklustre" performance shareholder patience was not infinite.

The broker said: "It is difficult to see shareholders tolerating underperformance from this strategy over the next few years and, were that to be the case, pressure would clearly grow to outsource some or all of the investment management functions."

Elliot, the US hedge fund, is agitating for change at the investment house and has put forward three new non-executive directors - former SG Warburg executive Anthony Brooke, Peter Chambers, previously chief executive of Legal & General and experienced corporate financier Rory Macnamara - for election to the Alliance board.

Elliot is convinced that Alliance Trust has consistently underperformed its peers. It pointed out that Scottish Mortgage Trust has benefited from its funds being run by external manager through strong investment performance but also in low charges to shareholders.

Elliott said: "Most other investment trusts have realised that the cost of internalised investment management in an era where critical mass is crucial to controlling costs is a real challenge, and have therefore decided to outsource investment management and other functions.

"Such a structure also provides flexibility to scale down costs in a market downturn, since fee arrangements are typically struck at a fixed percentage level."

Elliott suggested that since Ms Garrett-Cox became chief executive in 2008 "she has presided over persistent investment underperformance, despite numerous changes to the investment organisation and investment strategy".

The compensation of Alliance Trust directors was also highlighted as being greater than sector peers in spite of the perceived underperformance.

Elliott said: "The chief executive's remuneration is 3.2 times higher than that of the only other trust with an internal chief executive among the Company's large peers in the global sector, and the chairman's remuneration is 2.1 times higher than the average among peers.

"Notably, these peers have all produced materially better investment performance for their shareholders than Alliance Trust, and the sector, in recent years."

The Elliot response suggests Ms Garrett-Cox has been paid an average of £1.5m over the past three years which compares to the average of £477,284 received by Andrew Bell of Witan Investment Trust.

Ms Forseke's £120,000 fee is also ahead of the chairman of Witan who gets £55,625 as well as counterparts at Scottish Mortgage (£43,000) and Foreign and Colonial (£69,000).

Former Alliance Trust non-executive director Tim Ingram also recently suggested in an open letter to shareholders that Ms Garrett-Cox was overpaid.

Elliott also questioned the high turnover of non-executive directors on the Alliance Trust board with three of the six appointed since 2010 failing to see out a three-year term.

In its recent circular to shareholders Alliance Trust pointed out that its total shareholder return, including dividend payments, had been greater than sector peers while stating that its costs have been reducing in recent years.

Alliance Trust did not respond to Elliott's latest statements.