Comment: Is change what Alliance Trust needs?

IS Katherine Garrett-Cox, the £1.3 million-a-year chief executive of Alliance Trust preparing to depart the giant investment trust?

Speculation has been growing since the trust promised to announce changes to the Dundee-based trust this autumn. The commitment came after the board capitulated in the face of a shareholder rebellion earlier this year with the co-option of two “rebel” directors and in the wake of a “particularly challenging” six-month period for the trust.

Alliance has struggled to lift performance and its popularity with private investors and IFAs. The discount to net assets remains above the industry average at 12.3 per cent.

The trust has already undertaken substantial reforms. Boardroom composition has been changed. Anthony Brooke and Rory Macnamara, nominees of Elliott Partners, have joined as non-execs and the company is close to appointing a new non-executive to strengthen the oversight of the chief executive and her team.

The trust’s investment management was overhauled last year with the promotions of Peter Michaelis and Simon Clements. New guiding principles have been set down and the number of equity shareholdings cut from 88 to 68. There is a commitment to quarterly dividend payments. Steps have been taken to bear down on persistent losses at the Alliance Trust Savings platform.

After seven years at the helm as chief investment officer, Garrett-Cox may well feel that she has done all that she reasonably can to meet investor concerns. She has maintained the trust’s record of 48 years of unbroken dividend growth. Indeed it is hard to see what more can be done by way of significant change to the trust’s management and governance that could make an impact and convey the sense of fresh start. And another change in investment management at this stage, so soon after the last, would open the trust to charges of inconsistency and inability to take a long-term view.

While there is no evident pressure on the chief executive to step down, this autumn may present an opportunity to set in motion succession plans for this demanding post and put the £2.7 billion trust on a more forward-looking course. The alternative may be to prepare a tender offer.

Alliance Trust returned just 1.4 per cent over the six months to end-June, putting it in 29th place out of 36 peers. It says a slump in stocks and the spike in bond yields at the end of the period made its equity-heavy strategy appear comparatively weak.

Garrett-Cox said: “While the results for this specific period were disappointing, it should be noted that since the equity team took over responsibility for the portfolio in September 2014, the equity portfolio has outperformed its MSCI All Country World Index benchmark.”

Most analysts are expecting modest steps to improve the trust’s rating and reduce the discount. Tougher and clearer performance targets may also be on the agenda. But more change may be on the way.