Scotland business

Alliance Trust to shed investment team

Alliance Trust building
Image caption Alliance Trust employs about 250 people at its Dundee headquarters

Dundee-based finance firm Alliance Trust is to shed its investment team, in a major strategic shift.

The 128-year old company will outsource £3.6bn of equity investment to eight or more other investment firms.

Each will pick at least 20 stocks. This is to spread risk for investors, from 60 up to around 200 stocks.

Some job losses are possible among the 50-strong investment staff but most of the firm's employees in Dundee and Edinburgh will be unaffected.

The main intention of the move is to boost the Alliance Trust share performance.

It follows hostile demands from an activist investor, Elliot Capital, that the previous leadership team should leave.

Image caption Chief executive Katherine Garrett-Cox left the firm at start of 2016

The investment strategy developed by chief executive Katherine Garrett-Cox and chairwoman Karin Forseke was dumped.

Forcing its own director nominees on to the board, Elliott demanded that Lord Robert Smith - who was installed as chairman to handle the shareholder challenge - find a new business model that delivered better results.

Alliance Trust Investment, the asset management team which employs about 200 people in London and Edinburgh, is being sold to Liontrust Asset Management.

That £30m sale could involve some duplication and loss of jobs.

The investment team will retain Alliance Trust's £3.6bn fund until March. It will then be transferred to the new management contractors.

Overseeing the arrangements for about eight different managers will be Willis Towers Watson Investment, which advises on other firms' investments worth $2.3 trillion.

Liontrust is understood to want to retain the Alliance Trust Investment specialist knowledge of environment-related equities.

Green investments

It currently handles £2.3bn of assets for other companies, including Aviva, with a focus on investments which meet green criteria.

The remaining workforce in Dundee and Edinburgh are expected to remain in place, as most of them work for Alliance Trust Savings.

After a disappointing start, that retail finance division is expected to turn a profit this year.

The battle over control of Alliance Trust, which raged from late 2014 until October 2015, pitted the US-based Elliott partnership against a wide array of retail investors, many with long-standing family links to the Dundee company.

Although it is not necessary to put the change to a shareholder meeting, directors propose that happens by the end of January.

As an attempt to drive up the share valuation, the company is to resume its buy-back of shares. That was suspended while it reviewed strategy.

Speaking about the announcement, Lord Smith said: "The board has evaluated carefully a broad range of options, with an open mind and a clear line of sight on how best we could improve the trust's performance.

"We are proposing a new approach to the investment management of the equity portfolio. Our proposal is that we will move from a single manager to multiple equity managers. All managers will be rated best-in-class and each will create a focused portfolio of their vest investment selections."

The board has pushed up its performance target, from 1% more than comparable stocks, to 2% more.


Analysis by Douglas Fraser, Business/Economy Editor, Scotland

Image copyright Thinkstock

Beware of trying new, more ethical, greener approaches. In the financial world, if you don't get quick results, hard-nosed money will flush you out.

That's what happened to the team who wanted to develop Alliance Trust into a Tayside-based niche. People and institutions could take their investments there if they had strings attached of social, environmental and governance standards.

The niche is still there, and investors can still place their money with that team. But that expertise is being sold on. It no longer belongs on Tayside. Some investors thought they were losing money on "tree-hugging".

Alliance Trust, which began in 1888 as a vehicle for Dundee's wealthy Victorian merchants to invest in the colonies and the USA, reverts to a tighter focus on financial returns, delivered out-of-house.

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