A matter of Trust

The Alliance Trust is a doughty beast. You don’t get to the ripe old age of 127 in business without having faced and overcome significant challenges.

In fact the early life of the Dundee-basedTrust was more than just a difficult birth; it came at a time of recession as the city’s jute industry began to wane.

But the founding fathers had a vision for growth — neatly encapsulated by first chairman John Guild’s famous “put not your trust in riches but put your riches in Trust” quote — and in 1888 it set out on its wealth-creation journey.

It was an era long before digital communication had even been conceived, so it was no small leap of faith to invest hard-earned cash in an emerging economy thousands of miles from these shores.

But that is exactly what it did, initially offering mortgages to farmers trying to eke out a living from the land in the western United States.

A maximum loan to value of 40%, and payment demanded in gold coins, would set heads spinning among modern-day property purchasers, but it proved to be a savvy strategy as the Trust began to build.

In the decades to come, the Trust variously invested in huge tracts of land, struck oil through its shrewd managing of mineral rights, and invested in America’s early rail infrastructure.

It survived two world wars and the financial pain they wrought, depressions great and small, and ploughed on when stock markets crashed around it.

And all that time it helped to protect and create wealth for an investor base that stood by it through thick and thin.

In truth, there are shareholders on the register to this day whose holdings have been passed down through the generations and whose relationship with the Trust I would characterise as ‘happily disengaged’.

What I mean by that is the Trust has an investor base that will stick with it as long as the annual dividend continues to grow, something it has done now for a remarkable 48 consecutive years.

But I would not want anyone to mistake contentedness with complacency.

Shareholders are certainly not backward in bringing management to book when they believe the Trust is veering off course.

I have witnessed lively exchanges from the AGM floor as shareholders challenge the board on costs, discount to net asset value, investment priorities and the effect of political uncertainty on base-line performance.

In short, they are a switched-on lot with differing — and often opposing — views about the company’s future direction.

But despite their differences, they generally have one thing in common: a belief in the benefit of investing for the long-term.

You may be asking why I am telling you this.

Well, the Trust has become embroiled in a very public spat with an investor whose profile is very much out of the ordinary among Alliance shareholders.

Elliott Advisors is a hedge fund which is driven by money men looking for a much quicker return on investment than your average Alliance backer.

It bought in at a discount and, in growing a holding to more than 12%, Elliott is now the single largest shareholder in the Trust.

That means it is a very significant player, and its call for change — it is advocating the election of three new independent nonexecs to the board — cannot be simply brushed under the carpet and ignored.

So in a very un-Alliance Trust like manner, the pair have locked horns in recent weeks in a bitter war of words that has seen the Trust’s performance and cost-base put under serious public scrutiny.

The gloves are well and truly off and, as this fight will not be settled until the Trust’s AGM on April 29, there is time yet for more outbursts and public haranguings.

But when the dust finally does settle, I expect the quiet majority of Trust shareholders will have come in to bat for their company, and Elliott’s resolution for change will be voted down by a significant margin.

The Trust will be bloodied and battered, but it will emerge to fight another day. ghuband@thecourier.co.uk