Alliance Trust's Strategic Review Outcome

Closed-end funds and OEICs
MusingMarket
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Alliance Trust's Strategic Review Outcome

Postby MusingMarket » December 15th, 2016, 12:30 pm

Selling ATI(nvestments) to Liontrust, moving to a multi-manager model with Willis Towers Watson appointed as lead manager. Promising to be more pro-active in buying back shares, no change to ATS(avings).

The beginning of the blurb:
Alliance Trust PLC : Outcome of Strategic Review

Highlights

Alliance Trust to remain a global equity investment trust offering real returns over the medium to long term

Target to outperform MSCI All Country World Index to be doubled from 1% to 2% p.a., net of costs, over rolling three-year periods

Aiming to build on Alliance Trust's 49-year track record of year-on-year dividend growth

A new approach to investment management to be adopted to increase the likelihood of delivering consistently the performance target:

Move from a single manager to multiple equity managers, each rated best-in-class1
Each equity manager to create a focused portfolio of their top investment selections

Agreement reached to sell Alliance Trust Investments to Liontrust Asset Management Plc for up to £30 million; representing a premium of at least £5 million to book value

Alliance Trust Savings continues to make good progress and will remain as part of the Group; now profitable and well placed to develop further

A proactive programme of share buy-backs to be introduced with the aim of achieving a significantly narrower discount

Shareholders to be provided with the opportunity to vote on the new approach to investment management


Click here for the rest of the news release.

For me this is a positive step, you're getting rid of the always inconsequential yet empire building ATI and, I'm probably in a small minority here, think ATS has big upside potential. The multi-manager strategy has worked out rather well for Witan short-term, though, I'm sceptical of the long-term benefit.

Dod1010
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Re: Alliance Trust's Strategic Review Outcome

Postby Dod1010 » December 15th, 2016, 1:44 pm

I think they have tried just about every other investment management approach and so now it is to be multi manager, the current 'in' thing.

Getting rid of Alliance Trust Investments, about the last of the Garret Cox initiatives, must be a good thing as I did not think nt ever comfortably sat within the investment trust.

I am glad they are keeping ATS as I have a large ISA and smaller SIPP with them.

The best way to reduce the discount is to improve the performance.

I do not hold but they might be worth a dabble again.

Lootman
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Re: Alliance Trust's Strategic Review Outcome

Postby Lootman » December 15th, 2016, 2:00 pm

Dod1010 wrote:I think they have tried just about every other investment management approach and so now it is to be multi manager, the current 'in' thing.

A multi-manager approach makes things very easy for the portfolio managers at Alliance - they just pick half a dozen managers and then sit back and get paid for doing virtually nothing.

The first worry is costs, because there are now two layers of management charges and expenses. In theory a large portfolio should be able to get institutional rates from the underlying managers. But the temptation to price gouge the rather passive and uncritical investor base of Alliance might be too tempting.

Then of course which managers do they pick? And could the shareholders just invest directly in them and remove the middle man? What value will Alliance be adding other than shuffling money between the sub-managers, claiming it is "asset allocation"?

Finally if each sub-manager runs a diversified portfolio then how many share positions in total will Alliance be invested in? Last I heard they wanted to be "focused" and driven by conviction investing. Now they want a large, rambling portfolio that could end up looking a lot like an index fund, unless the sub-managers have very aggressive intentions.

I haven't held this in years and see no reason to now.

PresumingEd
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Re: Alliance Trust's Strategic Review Outcome

Postby PresumingEd » December 15th, 2016, 2:15 pm

Another example of 'management risk' with IT investing (to add to other recent examples, like BSET (British Assets)/BIST (Blackrock Income Strategies) and LSLI (look it up)). Viz, changing the investing remit, which may NOT be in line with one's original reasons for investing. Alliance and Second Alliance were once big and cheap global equity funds with tracker-like low costs and tracker-like performance. Cost increases in recent years have not been accompanied by improved performance. Here's hoping they can 'do a Witan', but I wouldn't bet on it.

Dod1010
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Re: Alliance Trust's Strategic Review Outcome

Postby Dod1010 » December 15th, 2016, 4:39 pm

PresumingeEd

What is about LSLI? Is that London & St Lawrence? I know they have launched a strategic review of their own. There is not a lot of point in nostalgia. I held Alliance and Second Alliance for many years but then go fed up of all the changes that Allan Harden was allowed to make and sold out.

Why can they not do a Witan? They were once a pretty hopeless case as well but the multi manager approach worked for them and Robert Smith the new chairman is much more hard nosed than either of the previous Alliance chairpersons (since they were both women.)

Lootman. Are there still to be any portfolio managers at Alliance? They are not mentioned in the Press Release. Willis Towers Watson seem to be the nearest thing to that and it would seem that their job is recommend and presumably keep tabs on the portfolio managers. Were it not for ATS, the HO ought to be almost redundant as the Trust itself is shedding portfolio management and keeping only stuff like Company Secretariat in house. It is moving from being an in house self managed operation to being largely outsourced as far as I can see.

I would be inclined to take a modest investment except that I do not have any spare cash at present.

Dod

forlesen
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Re: Alliance Trust's Strategic Review Outcome

Postby forlesen » December 15th, 2016, 5:47 pm

I've been a long term investor in Alliance Trust, and I'm trying to decide how I feel about this announcement. On the one hand, hopefully it will bring an end to the chopping and changing of strategy every year or two that has been going on for 10 years or more, and the wrangling with activist investors. On the other hand, performance the last couple of years has been pretty good, quite surprising considering the turmoil that has been going on.

I've tried to pick out points about which I feel positively, negatively, or not sure.

Positives:
  • More focussed strategy - just run a successful IT.
  • Commitment to a proactive discount policy, based on more active share buybacks.
  • Costs to be kept to 60pbs.
  • Getting out of being fund managers - this has never really carried conviction.
  • Multi-manager approach - I think it's positive if costs are under control.
  • General trust focus remains broadly unchanged - remains a global investment trust, progressive dividend policy
  • Initial market reaction seems favourable - SP up 2.7% on the day.

Not sures:
  • I don't know anything about Willis Towers Watson, the new uber-manager.
  • Performance target of 2% above MSCI All Country World Index might be a shade ambitious
  • What will the investment remits be for the sub-managers? How will the overall performance target be flowed down to the different parts of the portfolio?
  • How long will Alliance Trust Savings continue? I'm personally in favour of it, but I'm not sure it looks like a long-term fit with the new strategy. I imagine this has been a point of considerable debate.

Negatives:
  • My main concern is around the cost and risk of implementing this
  • The portfolio is going to be heavily shaken up to move from 1 manager + 60 stocks to N managers + 200 stocks
  • Possibility of ongoing reshuffles if sub-managers fail to hit targets

So, on balance, I think Alliance Trust is still a hold for me, but will be interested in others' views.

Lootman
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Re: Alliance Trust's Strategic Review Outcome

Postby Lootman » December 15th, 2016, 5:48 pm

Dod1010 wrote:Lootman. Are there still to be any portfolio managers at Alliance? They are not mentioned in the Press Release. Willis Towers Watson seem to be the nearest thing to that and it would seem that their job is recommend and presumably keep tabs on the portfolio managers. Were it not for ATS, the HO ought to be almost redundant as the Trust itself is shedding portfolio management and keeping only stuff like Company Secretariat in house. It is moving from being an in house self managed operation to being largely outsourced as far as I can see.

Yes, I would think that Alliance will end up with a skeleton workforce, much of it for statutory accounting and regulatory reporting. You really just need one person dealing with the sub-managers, whose contracts will typically be for a few years each, followed by review and replacement if they under-perform their targets. He would measure and monitor how the sub-managers are doing, much like we all do with our own investments.

It can work. Vanguard in the US use this model for some of their active funds, with good results, and claim these are the reasons why:

https://personal.vanguard.com/us/insigh ... ger-052016

Dod1010
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Re: Alliance Trust's Strategic Review Outcome

Postby Dod1010 » December 15th, 2016, 6:00 pm

Lootman wrote:Yes, I would think that Alliance will end up with a skeleton workforce, much of it for statutory accounting and regulatory reporting.


Yes I agree with that. They admit as much in their press release but that is not the same thing as another layer of portfolio managers which is what your comment implied.

To me the point is that if you look at the 2015 Annual Report, now almost a year old I know, but even then it was a very different company and an entirely new Board from the previous Alliance Trust that we all knew. I know culture does not change very easily but I think we need to judge this as an entirely new situation and the multi manager approach can work as you say. Look at the revived Witan and the success of RIT.

That is why I might be tempted to buy some.

Lootman
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Re: Alliance Trust's Strategic Review Outcome

Postby Lootman » December 15th, 2016, 7:08 pm

Dod1010 wrote:Yes I agree with that. They admit as much in their press release but that is not the same thing as another layer of portfolio managers which is what your comment implied.

It comes down to costs and it seems to me that there are really three levels here. Alliance are picking WTW to pick 8 fund managers who will then pick 20 shares each, so three layers of expenses:

1) Whatever/whoever is left working for Alliance in Dundee and Edinburgh (I guess we should exclude the ATS people, at least on the assumption that it breaks even)

2) WTW who, if I'm reading this right, will pick the eight sub-managers on rolling 3-year terms via some competitive process, and presumably will be paid a percentage of AUM for their expertise
.
3) Those sub-managers' charges, which I would assume would be at institutional rates.

If it were my money I would hold off until I know who those sub-managers are. Hopefully not some expensive hedge funds

The other issue is how are Alliance going to report their expense ratio? Will it reflect all three layers i.e. costs will be reported on a look-through basis? That would be the most transparent way to do it. If they report just their layer and the other expenses are "taken out of capital" then things are more murky and opaque about how much this 3-level approach really costs.

But in the end if, after expenses, they do return 2% a year over MSCI then that would be an achievement, if it can be sustained.

AJC5001
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Re: Alliance Trust's Strategic Review Outcome

Postby AJC5001 » December 15th, 2016, 11:58 pm

Dod1010 wrote:Why can they not do a Witan? They were once a pretty hopeless case as well but the multi manager approach worked for them and Robert Smith the new chairman is much more hard nosed than either of the previous Alliance chairpersons (since they were both women.)

Dod

(My bold)

Are you really saying what this seems to be saying?

Adrian

Dod1010
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Re: Alliance Trust's Strategic Review Outcome

Postby Dod1010 » December 16th, 2016, 8:21 am

AJC5001 wrote:
Are you really saying what this seems to be saying?


I am not sure what you mean but the remark is in no way sexist. All I am doing is referring to the previous two persons chairing the Board of Alliance as chairpersons because they were women. I think chairperson is a horribly artificial expression but seems to be required these days.

I have no intention nor would I wish to imply that just because they were women they were weak although I think they were and let first, Allan Harden and then KGC get away with far too much.

In contrast I think that Robert Smith (Lord Smith) is much harder nosed and of course he is organising things so that he will not have a CEO to worry about.

Dod

PresumingEd
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Re: Alliance Trust's Strategic Review Outcome

Postby PresumingEd » December 16th, 2016, 8:59 am

Dod1010 wrote:PresumingeEd

What is about LSLI? Is that London & St Lawrence? I know they have launched a strategic review of their own. There is not a lot of point in nostalgia. I held Alliance and Second Alliance for many years but then go fed up of all the changes that Allan Harden was allowed to make and sold out.

Why can they not do a Witan? They were once a pretty hopeless case as well but the multi manager approach worked for them and Robert Smith the new chairman is much more hard nosed than either of the previous Alliance chairpersons (since they were both women.

Dod


Re LSLI - yes, they have launched a strategic review. Unfortunately the very short RNS announcement gave no explanation as to why, or what they hope to acheive. Leaving holders wondering what is going on and speculating about the causes. Uncertainty is not ideal for a 'steady as she goes' income investment. Maybe I am being unduly pessimistic having had my fingers burnt by the BSET/BIST debacle. After more than 30 years investing in ITs I am getting rather fed up of these sort of shenanigans. Yes, you can sell up if you don't like it but if you are not alone then you have to contend with the discount widening.

As to scepticism re the prospects for ATS - the OEIC sector has plenty of funds of funds and multi-manager funds. The only common factor is high charges. Performance is all over the shop.

Is a global trust run by a single manager with low charges such a difficult prospect? The likes of Foreign and Colonial, Scottish Mortgage, Murray International and Martin Currie Portfolio suggest not.

Anyway I sold my ATST holding some years ago so for me this matter is of academic interest only.

Dod1010
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Re: Alliance Trust's Strategic Review Outcome

Postby Dod1010 » December 16th, 2016, 9:25 am

Thanks PresumingEd.

We are on the same wavelength. I am slightly mystified by the London & St Lawrence strategic review, having been a holder for many years, and, despite the double charging because of the 'fund of funds approach, am quite happy with things as they are.

Alliance have tried just about everything over the years since Gavin Sugget retired (around 2000) and as I have said it is nothing like the trust that it was. The multi manager deal can work so we'll see.

Dod

LooseCannon101
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Re: Alliance Trust's Strategic Review Outcome

Postby LooseCannon101 » December 16th, 2016, 8:20 pm

The press release does not mention the type of equity e.g. small or large capitalisation companies to be held in each sub-portfolio. The level of gearing is also not mentioned.

When there are multiple managers the total management charge is usually higher than a single manager, with the true figure hidden in the small print.

Promises e.g. 2% out-performance as regards World Equity Index benchmark, are easy to make but much harder to keep.

PresumingEd
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Re: Alliance Trust's Strategic Review Outcome

Postby PresumingEd » December 17th, 2016, 12:22 pm

Some negative comment from analysts reported here.

http://whichinvestmenttrust.com/long-aw ... ectations/

Dod1010
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Re: Alliance Trust's Strategic Review Outcome

Postby Dod1010 » December 17th, 2016, 2:02 pm

As I have said this sort of approach can work but I would have expected them to have made a tender offer. I can only conclude that Elliott did not want that because I cannot believe that they were not consulted about the Strategic Review.

Analyst's views are not really much help to anyone. If I held Alliance (which I do not) I think I would welcome the change and hang on.

Kidman
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Re: Alliance Trust's Strategic Review Outcome

Postby Kidman » December 17th, 2016, 3:20 pm

As a long-term holder of the Alliance Trusts, I have had various concerns since George Stout retired but have stayed invested and it has generally done a reasonable job but with far too many distractions such as ATI, ATS, reshuffles, new strategies etc.

The current plan sounds worth a try but I would like them to keep their options open about selling ATS and then concentrating on just being a large generalist investment trust.

Dod1010
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Re: Alliance Trust's Strategic Review Outcome

Postby Dod1010 » December 17th, 2016, 8:42 pm

Kidman

You are giving away your vintage in mentioning George Stout (father of Bruce, the manager of Murray International) You should certainly get recognition from the current chairman for patience and forbearance if nothing else.

I was born in Dundee and so, together with the Dandy and the Beano, Alliance is in my DNA but after many interesting exchanges with that most useless of chairmen, Lesley Knox, I gave up and sold what at one time was my biggest holding. I have no regrets but I feel that Lord Smith who is a tough cookie, might just be worth a punt.

The FT today comments that retaining ATS for now might be just an interim measure. I would prefer that they keep it because a considerable amount of my assets is tied up in them and I think I can trust them.

Incidentally if they did sell ATS, what would become of their large HQ building, for which they got a grant from some Government agency to build? Custom built and not really much use to anyone else I would have thought, at least not without a good deal of change.

Dod

forlesen
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Re: Alliance Trust's Strategic Review Outcome

Postby forlesen » December 20th, 2016, 3:19 pm

I've just noticed the following interesting announcement relating to Alliance Trust shares:

http://otp.investis.com/clients/uk/alli ... sid=830579

This was triggered by Elliott Associates going over an 18% threshold for ATS shares.

Comparing this with the last similar notice back in August (when they crossed the 17% threshold), it appears that Elliott have extended their Contract for Difference (CFD) by a further 4 million or so shares.

http://otp.investis.com/clients/uk/alli ... sid=772224

I'm not sure what to make of this, I'd expected them to start exiting, exploiting the reduced discount (down to around 6% now) and more active buyback now underway.

Lootman
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Re: Alliance Trust's Strategic Review Outcome

Postby Lootman » December 20th, 2016, 3:50 pm

forlesen wrote:This was triggered by Elliott Associates going over an 18% threshold for ATS shares.

Comparing this with the last similar notice back in August (when they crossed the 17% threshold), it appears that Elliott have extended their Contract for Difference (CFD) by a further 4 million or so shares.

Any idea why they are using CFDs rather than the shares (other than cost, obviously)? I would have thought that CFDs confer no voting rights but still have to be declared and disclosed.


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