ALLIANCE Trust has bought back £41.2m of stock this year in a marked change of strategy since coming under fire from activist shareholders, one of its brokers said yesterday.
Alliance has bought shares 20 times since February in a bid to appease hedge fund Laxey Partners, which wants the trust to adopt a formal system of using buybacks to keep its share price at a maximum of ten per cent below its overall net asset value.
But Charles Cade, head of investment companies research at Alliance’s broker Numis, warned that in the long-term such a discount control mechanism “could lead to a significant shrinkage of the fund’s capital, which would have implications for its resources.”
Despite the buybacks, a Laxey spokesman told City A.M. it would press for a new fund manager to take control of the trust if shareholders do not pass its resolutions at Friday’s annual meeting. “If we find that we have significant shareholder support but not enough votes for the resolutions to be accepted, we would take steps to see whether the contract should be put out to a beauty parade to other managers,” he said.
John Newlands, research head at four per cent shareholder Brewin Dolphin, said raising the share price may cause more holders of the stock to sell out, creating a need for larger buybacks. “The great question that remains is how long and how large these buybacks will have to be to reduce the discount?” he said.