Dundee citadel is breached

KATHERINE Garrett-Cox has learnt to her cost that resisting the attentions of activist i nvestors can be the road to ruin. her defence of Alliance Trust is that as a Dundee-based fund manager with a relatively small band of investors, who have been around for generations, measuring short-term performance is irrelevant. It is decades, if not a century, which count.

The trouble is that over five and ten-year periods, measured against recognised benchmarks such as the MSCI World Tracker, performance does not hold up to scrutiny.

The Alliance Trust chief executive is moving off the main board as part of a slimming exercise for the group which will see a fire sale of superfluous assets that include mineral rights and property.

It is hard to have a great deal of sympathy for Garrett-Cox, who received £1.4m last year for a lacklustre performance. But it is acutely disappointing to see one of the country’s most prominent businesswomen moved to the back benches by outside investors such as elliott Advisors with l i ttle understanding of the traditions of the enterprise and largely acting through short-term motives.

What boards need to understand is that the arrival of an activist investor almost always signals the end to the world as they have known it. here, Nelson Peltz’s stalking of Cadbury-Schweppes led to the sale of the soft drinks arm and made it open season for the sale of Cadbury to Kraft in 2010 with catastrophic consequences.

Activist investors, more often than not, have big battalion longterm investors on side. The assault on F&C Asset Management by edward Bramson’s Sherborne in 2011 largely triumphed because it had Aviva Investors (that happens to have a stake in the Bramson fund) as a supporter.

When ValueAct l aunched an assault on Microsoft in 2013, with 1pc of the equity, it had the tacit support of Franklin Templeton Investments and Capital Research, two of America’s most respected long-term ‘value’ investors.

A whole new game of fund management has been built around activist investors. Some mutuals in the US have managed greatly to outperform the market through the simple process of monitoring thousands of filings with the Securities & exchange Commission, the US’s share market watchdog.

Activist investors in the US must announce their arrival on share registers within ten days of acquiring stock, in what is known as 13D disclosure. Such disclosures are seen as a buy signal. Generally the arrival of the agitators means more value for long-term investors.

In contrast, research groups such as secretive Gotham City, the exposers of Quindell’s problems, offer a bonus to the short sellers. What is remarkable about GarrettCox’s retreat is that she is willing to be expelled from a board, which from now on will be made up of non-executives.

It is a change in status which can only hurt, having fought her corner so strongly. With the clock running ever faster, she might have done better by deploying her talents away from Dundee.

Debt overhang

A LONG period of ultra-low interest rates has had an enormous impact on debt markets. New analysis by the International Monetary Fund finds that between 2008 and 2014 levels of corporate debt to annual output (GDP) in emerging markets rose from 24pc to 74pc.

And the proportion of borrowing through bonds, that have all kinds of restrictive clauses, doubled to 17pc of GDP. The IMF is not the only organisation worrying about levels of debt. Recently, Bank of england governor Mark Carney pointed to the risks of debts in the Chinese shadow banking system that have reached 200pc of GDP.

In Western markets, investors have been queuing up to hold cor- porate debt because of the more generous yields. But the scandals at VW and Glencore have underlined the vulnerability of such bonds with yields surging and Glencore paper trading as if it were junk. The twin crises have alerted investors to default risk.

The combination of a rise in interest rates and the uncertainty surrounding commodity prices is making emerging market and corporate bonds equally toxic.

Islands in the Stream

AS A former US correspondent I liked nothing better than arriving in some of the more remote corners of America, hiring a car and living the American dream listening to country and western music as one cruised the highways.

The discovery that hewlett Packard chief Meg Whitman liked to regale fellow directors with Kenny Rogers before opening board meetings to discussion makes her a much more sympathetic character to me than the one portrayed in Mike Lynch’s $150m lawsuit.

Country music is one thing but fellow directors could have done without her reading propaganda emails praising her management.