Dundee will remain central to the future of the Alliance Trust, the group’s new chairman has declared.
Lord Robert Smith of Kelvin took over the top job in January during one of the most tumultuous periods in the Trust’s long history following a significant shareholder backlash over corporate governance and the group’s performance.
The well-known businessman said he had done his homework before accepting the chairman’s role – which was vacated by Karin Forseke who had backed former chief executive Katherine Garrett-Cox in an ultimately doomed fight against major investor Elliott Advisers ahead of the 2015 AGM – and was happy that a workable strategy existed to return the Trust to health in the long-term.
“I have been watching this story over several years and I know some of the people involved somewhat,” Lord Smith said.
“When I was approached (about the chairmanship) what I wanted to know is ‘do they have a plan’ – because life has been quite tough over the last couple of years – and were the people there capable of delivering it?
“I do my homework quite carefully before I go on a board and I was satisfied they had a plan and the people were here.”
Lord Smith was speaking ahead of the Trust’s annual general meeting at Gardyne Theatre in Dundee.
In an exclusive interview with The Courier, he defended the Trust’s use of cash to buyback shares in an attempt to cut the discount to net asset value – seen by investors as a key performance indicator -into single digits.
More than £170 million has been spent on buybacks since October when the Trust announced wholesale reforms to its corporate structure and investment strategy.
While the measure did come in from more than 14% to 8.2% as a result of the buyback policy, discounts have widened considerably across the sector in the first months of 2016 and the Trust’s discount now sits at 10.2%.
Lord Smith said the single biggest key to lowering the discount in the long-term was improving the Trust’s overall investment performance.
He said there had been a generally improving picture on performance over the past 18 months and paid tribute to the work of Peter Michaelis in driving returns.
“The only way to get the discount down is performance,” Lord Smith said.
“We need the people out there – the Brewin Dolphin’s, the Spiers & Jeffrey, the wealth gatherers – to be saying (to clients) you need to be in on this.”
Lord Smith said a major focus going forward would be on improving the Trust’s costs of doing business – the target is to get to 45 basis points from the current level of 59 basis points.
He also said he was confident the Trust’s two subsidiary companies Alliance Trust Investments (ATI) and Alliance Trust Savings (ATS) would move into a position of sustained profitability within a matter of months.
A number of roles within ATI have been moved out of Dundee in recent months and the majority of that business is now based in London and Edinburgh.
However, the ATS team has grown over the last 12 months at the group’s West Marketgait headquarters and he said he was committed to the Trust retaining its presence in Dundee.
The company now has around 300 employees, up about 10% on the year previous, and the majority of that growth has been in its home city.
The subsidiary businesses have been the subject of criticism from the shareholder base over recent years due to the level of investment they have required.
However, Lord Smith said he was confident that ATI and ATS – which together have a combined value of 2.2% of the Trust’s entire portfolio, significantly less than the value of its holding in Visa for example – would prove their worth in the long-term.
Shares in Alliance Trust were marginally lower in early trading ahead of the AGM today.
