Elliott Advisors, the activist hedge fund headed by Paul Singer, boosted its stake in Alliance Trust to 14%, which was considered by market observers as a move to continue its pressure on the investment trust.
The activist hedge fund currently holds 9.9% of ordinary shares and 4.1% of derivatives positions in Alliance Trust, one of the largest investment trusts in the United Kingdom.
Elliott Advisors previously owned approximately 12% stake in the investment trust. Alliance Trust agreed with the activist hedge fund to expand the number of its board of directors to prevent a shareholder vote on the issue during its annual general meeting (AGM) on April 29, 2015.
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Elliott continues to put pressure on Alliance Trust
Jason Hollands, a managing director at Tilney Bestinvest, which holds a small stake in Alliance Trust commented that Elliott “appears to be increasing its exposure and clearly piles on the pressure during what is undoubtedly a challenging market environment for most managers.”
On the other hand, Numis Securities said, “Elliott may no longer be in the public eye, but its growing presence in the shareholder register will continue to put pressure on Alliance Trust’s Board.
Numis Securities also said the investment trust “lost its identity.” The investment banking firm added that Alliance Trust “used to be regarded as a low cost, safe play that would tend to underperform in rising market, but would outperform in weaker markets. However, this risk/return profile no longer applies.
Alliance Trust performance
In July, Alliance Trust reported weak performance for the first half of this year, which prompted the management to implement further changes. Its equity portfolio generated a total return of nearly 1.6%, below the 2.1% of the mSCI ACWI. The investment trust said its underperformance was primarily due to a sharp increase in bond yields.
Alliance Trust has been consulting shareholders, and it is considering all options to improve its performance. Alliance Trust CEO Katherine Garrett-Cox has not ruled out the option to make a drastic change to external management of the investment trust.
“They’re going to have to state clearly their performance objective and remuneration policy, and introduce a benchmark,” commented James Maltin, an investment director at Rathbone Investment Management, which also owns a stake in Alliance Trust.