Alliance Trust posts encouraging Q1 results but speeds up search for ‘independent’ new director

Dundee-based investor Alliance Trust has announced the appointment of headhunters to find a new non-executive board member as it aims to head off the challenge of activist investor Elliott Advisors ahead of this month’s crunch AGM.

Alliance Trust said today that it was stepping up its search for an “independent” new non-executive director in a statement that will be seen as clearly aimed at the US hedge fund currently agitating for the appointment of three new directors on the 127 year-old company’s board.

Current chief executive Katherine Garratt-Cox has led the current regime’s strident claims that the trio put forward by Elliott would not be independent but primed to pursue what she claims is the real goal of a partial liquidation of the £2.9billion trust for short-term gain. An agenda that she has argued is against the interests of all shareholders.

In a trading update, the FTSE 250 investment trust confirmed it had hired headhunters Russell Reynolds to “undertake a broad, transparent and rigorous search”.

The company added: “This search will be based on an assessment of the needs and challenges of the business and the skills and experience required to complement those of existing board members. As part of this process any candidates put forward by our shareholders will be considered.”

Results, meanwhile, showed Alliance outperformed the Global Sector over the first three months of the year.

The trust’s statement said it was reiterating its focus on generating a real return for shareholders over the medium to long term through capital growth and rising dividend payments to shareholders.

TSR was 6.9 per cent and NAV TR 7.9 per cent for the quarter which are now both ranked in the top or second quartile of the Global Sector peer group over one year.

The equity portfolio, meanwhile, has outperformed the MSCI All Country World Index over 1, 3 and 6 months, a performance that directors were keen to point out reflected the time since Peter Michaelis assumed the role of Head of Equities and Simon Clements was appointed to manage the equity portfolio of the Trust.

Ms Garrett-Cox said: “We are pleased with the strong performance of Alliance Trust during the period which we believe shows that our strategy is working.”

“The Trust has outperformed the global sector over the first three months of the year, a continuation of the work Peter Michaelis and Simon Clements have done since they were appointed in September of last year.”

Meanwhile, the broking house working for Elliott Advisors has defended its support for the hedge fund after being accused in a report by an anonymous Alliance Trust source of hypocrisy in being “a supposed promoter of the sector appearing on the side of an activist hedge fund”.

Numis, however, has argued that Elliott’s move is “not simply a case of an opportunistic trade by a short-term shareholder”.

It says: “Elliott has not proposed any specific course of action. Instead it has proposed the introduction of ‘fresh blood’ to the board. Elliott has provided compelling evidence, in our view, to question the status quo, citing Alliance Trust’s failure to deliver strong performance or address a wider discount than its peers, whilst paying high remuneration to the CEO.”

Numis added: “Ultimately, a refreshed board may lead the company in a different direction, by questioning whether the current strategy is optimal. However, it is worth noting that the three new directors, if appointed, would represent a minority on the expanded board of ten, and their statutory responsibility would be to act in the interests of shareholders as a whole.”

The broker says it recognises that Elliott’s objectives are likely to differ from the majority of retail investors, but it does “not see this as a conflict if it leads to improved performance and a tighter discount”.

The board had also implied that Elliott’s proposals would put the dividend at threat.

“However, Elliott has not called for a dividend cut, but has simply questioned the sustainability of the current dividend.”