Arbitrageurs buy into Alliance trust

Arbitrageurs have taken a stake in the £3 billion Alliance investment trust, according to Wins Investment Companies Research.

Deutsche Bank announced that it crossed the 3% reporting threshold at the end of September. Meanwhile, the £1.4 billion Witan investment trust has bought back the 5% stake taken by a hedge fund in March.

Wins highlights “grow-ing criticism” of Alliance’s discount, which is running at about 18%, as a possible reason behind the move. Nick Greenwood (pictured), chief investment officer at iimia and a significant investor in the trust, agrees but says its size, coupled with tighter credit conditions, makes it an unlikely target for corporate action.

Greenwood says: “Alliance now regards itself as a company rather than an investment trust and does not consider buybacks to be a worthwhile use of its time. The fund is vulnerable but the board is taking a calculated risk.”

Wins says the fund’s largely retail investor base also makes it harder for single investors to build large positions. Alliance declined to comment on the trading. But in a statement released last week, Lesley Knox, the trust’s chairman, defended the lack of buybacks. Knox said: “The board would only exercise this authority [to use buybacks] if and when it considered that this would benefit all its shareholders equally, and not only a small group of shareholders seeking speculative short-term returns.”

Greenwood says the long-term outlook for the firm is positive, and adds that it is trying to diversify its business. He says: “Alliance is an interesting story that has not been communicated well. There is some interesting new talent coming in and it is developing its open-ended and savings businesses. But the value of the business is not reflected in its net asset value — investors do not like three-year stories.”

Witan’s buyback of the 5% stake owned by Carrousel Capital marks a victory for the trust. As reported in Fund Strategy on April 23, Carrousel has been instrumental in forcing a number of trusts to wind up or restructure in recent years. Wins had previously highlighted Witan as a possible target for liquidation, but now says such action is “unlikely.”