Alliance Trust is set to come under pressure once again to improve its performance and narrow its discount as an activist investor has taken a 10 per cent stake.
US hedge fund Elliott Associates has declared a 10.02 per cent holding in the investment trust - half of which is held through derivatives which do not have voting rights - up from 5 per cent in 2012.
According to analysts at Numis Securities, Elliott was “one of the most active investors in the investment companies sector a decade ago”.
In an analyst note Numis said it thought Elliott’s increased stake “raises the prospect of hostile corporate action” at Alliance Trust, which has already seen significant changes since Katherine Garrett-Cox was appointed chief executive in 2008.
The analysts said: “The announcement that Elliott has increased its stake to over 10 per cent puts further pressure on Alliance Trust to improve its performance and narrow its discount.
“We would not be surprised if its buyback programme became more active once again.”
Alliance Trust last put in place an aggressive buyback scheme in 2011, buying back its own shares and then cancelling them, which serves to reduce the trust’s share price discount to its net asset value.
The move was in response to pressure from another activist investor, Laxey Partners, a firm that failed in its attempt to force further change at Alliance Trust and subsequently sold its stake.
However, Numis said the buyback scheme had dried up in 2013 and the trust now trades at a substantial 12.3 per cent discount to its net asset value.
But Numis pointed out that any action from Elliott Partners to force a change on the trust will be hard to pull off because “the majority of the shareholder base is represented by retail investors”, who will be difficult to mobilise into action.
