Elliott Advisors has built up a 12% stake in Alliance Trust and is now seeking to rock the boat. The U.K.-based activist hedge fund sponsor of which Paul Singer is a director said today that it had nominated three people to join the company’s board of directors.
Elliott Advisors nominates 3 to Alliance Trust’s board
Alistair Gray and Claer Barrett of the Financial Times report that the three nominees are Peter Chambers, former CEO of Legal & General Investment Management; former SG Warburg executive Anthony Brook; and former Morgan Grenfell director Rory Macnamara. Elliott Advisors reportedly hired Spencer Stuart, a headhunting firm, to identify the three best candidates for Alliance Trust’s board.
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A spokesperson for Elliott Advisors said in a statement that they made the nominations ahead of next month’s annual meeting because they had been attempting to talk with management about corporate governance and business concerns. The firm’s statement said they were not “met with any meaningful response which addressed those concerns substantively.”
Elliott explains corporate governance concerns
Elliott sent a letter to Alliance shareholders today, explaining the concerns it has with the firm’s corporate governance practices. The firm expressed worries about what it said was the “persistent underperformance” of Alliance’s portfolio compared to its peers in its sector. Also Elliott suggested that the Trust’s internal investment management costs too much and pointed out problems that two of the firm’s subsidiaries continue to post losses.
Singer’s firm also accused the Trust’s board of being resistant to change and pointed out that CEO Katherine Garrett-Cox has continued in that capacity for a longer period of time than any of Alliance’s non-executive directors have served. Additionally, Elliott Advisors said appointments were made by the board without consulting shareholders or giving notice that there was an opening on the board.
Alliance’s equities chief replaced
In particular, Elliott’s letter mentioned the internal replacement of the Trust’s head of equities. The person manages 95% of Alliance’s assets. The firm appointed its former sustainable investment head to take over the important position and did not cast the net to find a replacement any wider. Also Alliance did not give notice of the opening or advertise the position before filling it.
Elliott pointed out that other investment trusts have managed to reduce their asset management fees recently. However, Alliance’s administrative costs have doubled under the firm’s management, according to Elliott Advisors.
Past changes at Alliance Trust not enough
Four years ago, Laxey Partners, another activist investment firm, unsuccessfully tried to oust Garrett-Cox from her position as investment chief. Laxey also demanded a strategic review of Alliance’s business and pushed the Trust to consider outsourcing its funds management.
The firm has since began restructuring, replaced its investment team, reduced costs and began buying back shares. However, Elliott thinks Alliance Trust and its stock can do better. According to unnamed sources cited by the Financial Times, Elliott Advisors met with Garrett-Cox and Alliance chairman Karen Forseke last week.
One source reportedly told the Financial Times that the activist firm did not reveal its desire to secure three seats on Alliance’s board at that meeting. However, another source reportedly claimed that Alliance has known for months that Elliott wants to see changes.
Alliance Trust is scheduled to hold its next annual meeting on April 29, and Elliott is urging shareholders to vote in favor of placing its nominees on the board. Other companies that have been on Elliott Advisors’ radar recently include Juniper Networks, Interpublic Group and Informatica.
Analysts from JPMorgan are taking the side of the company and note:
While it is true that longer term performance has lagged peers, the new ESG-focused management team is off to a good start performance wise, although it might be too little too late for some. And costs are heading in the right direction at 60bps which is competitive vs peers. We believe the subsidiaries, particularly ATS, while loss-making in aggregate are a potential source of long term growth. In our view, Elliott should not underestimate the loyal shareholder base and the support they have shown to the incumbent team in previous votes. That said, we think Alliance could make itself more appealing to investors seeking a higher yield by using the full flexibility of the investment trust rules to increase the dividend more aggressively.