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New Alliance

1 October 2015 By Neil Unmack

Katherine Garrett-Cox’s demotion could herald a breakup of Alliance Trust. The struggling investment firm’s chief executive is stepping down to lead its asset management division, Alliance Trust Investments (ATI). There, she will have to meet performance targets, or ATI will lose its mandate. Activist Elliott Advisors wanted more, but her probation is still a coup.

Being crowned UK business woman of the year in May has not helped Garrett-Cox. Her demotion is part of a bigger re-jig at Alliance Trust, which has drawn fire from Elliott, its largest shareholder, thanks to the discount at which it trades to its net asset value – yesterday, just under 11 percent. The trust, which has a market value of 2.5 billion pounds, had an unorthodox structure in which it owned its own asset manager and Garrett-Cox ran both firms. Now she will lead ATI only and the main board will mostly comprise recently appointed non-executives.

For Garrett-Cox, it’s an enforced return to her pure asset management roots: she was previously chief investment officer of both Aberdeen Asset Management and Morley. But there’s no doubt she is under pressure. The board will scrutinise the manager’s performance, put in place a more standard six-month rolling contract and expect it to beat an index. Moreover, it wants the asset manager to be profitable by the end of next year, which means Garrett-Cox will have to grow third-party assets or cut costs to the bone.

It’s a victory for Elliott, but an incomplete one. The hedge fund has called for more radical action in the past, such as outsourcing the asset management arm to a better manager, which would close the discount sooner. The terms of this shake-up could have been more ambitious. ATI is aiming for 1 percent outperformance of a broad benchmark, and before fees. The board has also pledged to buy back shares to close the discount, but only to below 10 percent.

The opportunity for Alliance investors – and board members – is that a newly motivated Garrett-Cox recovers her mojo. The risk is that the lack of an entirely fresh start means the discount persists. Alliance Trust shares have nudged up 3 percent since the announcement. But a fissure between its governance and its investment management has become more likely.


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