Spotlight on Alliance Trust chief intensifies with disappointing results

Dundee-based Alliance deserves some credit for being candid about the results, though certainly not for the first-half investment performance.

“The portfolio returns during the period were disappointing,” it notes.

Alliance chairman Karin Forseke declares that the board has listened to the “significant proportion” of the trust’s shareholder base that indicated desire for change in the run-up to the annual meeting in late April. She adds that the board anticipates announcing, in the autumn, the changes that it intends to make.

Alliance chief executive Katherine Garrett-Cox, however, appears at pains to flag positives in the results. This is perhaps understandable, given the shareholder pressure on Alliance to deliver better results.

Activist investor Elliott Advisors played the starring role in the show of shareholder discontent at Alliance. As a shareholder vote loomed large, the trust agreed at the 11th hour to much of a boardroom shake-up plan put forward by Elliott.

The investment trust revealed the day before its April 29 annual meeting in the City of Discovery that it had agreed to appoint two of three new non-executive directors proposed by Elliott to its board. The agreement to appoint financial sector veterans Anthony Brooke and Rory Macnamara followed a protracted war of words between the two sides over the boardroom shake-up proposed.

In the end, the previously reluctant Alliance conceded that the significant experience of the pair would be “a considerable asset”.

Ms Garrett-Cox is also an industry veteran. And the fund manager, nicknamed Katherine the Great fairly early in her career, has been among the highest-profile figures in the UK fund management sector over a period of decades.

Alliance recruited Ms Garrett-Cox, a former chief investment officer at Aberdeen Asset Management, from fund manager Morley in 2007. She succeeded Alan Harden as chief executive of Alliance in 2008.

She has overseen radical changes in the investment process and team at Alliance.

It is easy to long for the good old days of past decades at the trust, when it sat back a bit from the cut-and-thrust of the City of London and pursued a culture that was perhaps perceived as a bit dusty but enabled it to prosper.

This sentiment is not being expressed as the longstanding holder of a modest number of shares in Alliance, with this stake very much parked for reasons which have nothing to do with the trust’s performance or value. Rather, it is expressed as a business journalist who spoke regularly with former top brass at Alliance such as Gavin Suggett, Lyndon Bolton, and Alan Young.

Commenting on Alliance’s latest results, Ms Garrett-Cox said: “We are reporting...on the six-month period to 30 June, during which time we have underperformed a number of our peers.”

However, she goes on quickly to highlight what she views as positives in terms of Alliance’s investment performance. Much of the problem, she tells us, arose from bond market developments in June.

Ms Garrett-Cox says: “Much of the underperformance occurred in June when the sharp rise in bond yields affected the return. While the results for this specific period were disappointing, it should be noted that since the equity team took over responsibility for the portfolio in September 2014, the equity portfolio has outperformed its MSCI All Country World Index benchmark.”

The chief executive talks about building a long-term track record that Alliance expects will, “over time”, narrow the discount at which its shares trade to net asset value. However, the long-term context laid out in the results statement does not make great reading.

Alliance, again to its credit, sets out clearly how it ranks in terms of investment performance relative to its peer group.

These comparisons make interesting reading indeed.

Alliance’s net asset value total return of 8.8 per cent over the year to June puts it 21st out of 36 in its peer group.

And its total return over three years puts it 22nd out of a 34-strong peer group during this period. Alliance is meanwhile ranked 20th out of 32 in terms of its investment performance over the five years to June 30.

At the end of the day, the thing that matters for a trust such as Alliance is investment performance. And there is no hiding from the figures and league tables.

Fund managers can, often with some justification, argue why their performance should be looked at over a certain time period. For example, during periods of market gyrations that at least border on the irrational, they might contend that it is their longer-term investment performance on which people should be focused.

Alliance is one of the biggest investment trusts in the UK. It has a proud history, and its shareholder numbers run into the tens of thousands. So the trust has a great deal going for it.

First Minister Nicola Sturgeon has been among those to highlight Alliance’s importance to the Scottish financial community.

The problem for Ms Garrett-Cox is that Alliance’s results to June 30 show the trust is in the bottom half of its peer group over six months, and over one, three, and five years. These comprise all of the periods laid out in the table.

That is not a great position even at the best of times, let alone when shareholders are agitating for change.

It will be interesting to see how the Alliance drama plays out, particularly in terms of the nature of the changes unveiled by the board in the autumn and how these are received by shareholders.

Ms Garrett-Cox says she wants to stay at Alliance to play her part in maximising the prospects of the business.

The Elliott Advisors campaign, and calls for change received from other shareholders of Alliance, have undoubtedly shone the spotlight more brightly on Ms Garrett-Cox, in terms of the performance. The latest results would seem likely to turn up the intensity of the beam.