Elliott hits back as Alliance Trust board saga escalates

US hedge Elliott Investors has criticised what it described as “unsubstantiated attacks” on a trio of prospective directors that it is agitating to have installed on the Dundee-based wealth manager Alliance trust’s board.

Elliott’s intervention is the latest installment in what is now becoming an almost daily back-and-forth between Alliance and its 12 per cent stake holder who has proposed former SG Warburg executive Anthony Brooke, ex-legal & General Investment Management chief executive Peter Chambers and Rory Macnamara, a former senior corporate finance professional, join the under-performing wealth manager’s board.

Alliance has dismissed the move, with current chief executive Katherine Garrett Cox (pictured) claiming that the trio “cannot be considered to be independent” as they will “pursue its (Elliott’s) own agenda and engineer a quick exit from its shareholding”.

However, Elliott responded yesterday by saying Alliance had failed to engage on “matters of substance and resorts to personal attacks in a manner unbecoming of directors of a public company”.

It added: “By any standard of accepted governance principles, the nominated directors are truly and fully independent and, if elected, would not countenance being unduly influenced by any particular shareholder in any way.”

Eliott’s statement comes after former Alliance non-executive Tim Ingramthis week said he would be voting in favour of Elliott’s bid to shake up the boardroom at the Tayside institution’s annual meeting on 29 April.

Ingram, who served as a director from 2010 to 2012 and nw chairs theWealth Management Association said in an open letter to shareholders: “The overall performance of Alliance Trust in the medium term has been dismal.”

Also weighing in yesterday, analysts at Alliance’s corporate broker JP Morgan Cazenove said the interventions from Ingram and Elliott had landed a “few heavy blows” on Alliance, which the hedge fund said has underperformed its peers “over all relevant return periods”.

In a note to clients, the broker added: “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.”

The upcoming vote was an effective referendum on the future of the company, the analysts said in their report.

However, while analysts at JP Morgan said it is “hard to deny that performance has been lacklustre” compared to wider markets, it acknowledges that management has made efforts to turn this around.

But the report also warned that it is hard to see how shareholders will tolerate the poor performance and how it will continue without pressure to outsource some or all investment functions.

The analysts think that Elliott’s argument that the management costs are too high is a “red herring” and say that outsourcing to good managers who would boost the performance would likely cost more. Elliott has claimed the expense ratio of the fund is 0.7 per cent, while Alliance has it at 0.6 per cent.

JP Morgan’s analysts also point out that it may be telling that Elliott’s most recent intervention in the battle it did not include a denial of Alliance claims that it is looking for a cash exit near NAV via a tender, say the analysts.

“This letter would have been a good opportunity to deny it was seeking such an exit,” the report said.

”It is clear to us that a vote for the three nominated directors is a vote of no confidence in the Board and therefore for change, no matter how reasonable it sounds to bring on board three new directors,” the analysts add.