Alliance Versus RIT Capital

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Readers will no doubt be aware from the national media and communications with shareholders that RIT Capital have approached Alliance Trust about a possible merger. The press have noted the problems faced by Alliance in the last few years such as the persistently high discount and the attack by Elliot Advisors (supported by ATSAG/ShareSoc of course) that resulted in board changes. RIT shares have traded at a premium to net asset value recently and media comments tend to generally be positive on their performance as against Alliance. But is this really true?

Looking at the performance figures reported by the AIC, and examining the Net Asset Value Total Return figure then it is not obviously the case (this is a better figure to look at than share price total return which is distorted by the movement in the share price discount). Over ten years, Alliance returned 177.9 whereas RIT returned 191.4 (this reflects the perceived long-term underperformance of Alliance which prompted the revolution in the last couple of years). Incidentally they both underperformed the Global sector performance benchmark over that period which probably reflects their defensive, conservative investment approach in comparison with other trusts. However, over 5 years Alliance achieved 143.8 whereas RIT achieved 137.7 and over one year Alliance achieved 100.7 whereas RIT achieved 98.9.

Now this writer currently holds both Alliance Trust and RIT Capital shares and held RIT over the last 10 years. As you can see from the figures, RIT went through a poor performance patch a few years ago and changed the investment manager subsequently. Overall there is no justification for suggesting that RIT Capital has been consistently better and they have not been without their own performance problems. It was perhaps the reign of Katherine Garrett-Cox at Alliance which really undermined investors confidence in that company whereas Lord Rothschild has been more perceived as a steady hand on the tiller, backed by his own financial stake in the business. Hence the disparity in share price discounts even when RIT’s performance was lacklusture.

Apart from a possible merger enabling Alliance holders to see a reduction in the discount, when it might reduce the premium on RIT (which has already happened in anticipation to some extent), there are a number of other possible problems with such a merger. Or indeed with a merger with any other investment trust although others might be more attractive. Firstly the investment policy is somewhat different and Alliance still have the problematic ATI and ATS subsidiaries which any merger partner may not want. Alliance also have substantial operations in Dundee which might be difficult to move or expensive to restructure. In addition the board of RIT is led by 80 years old Lord Rothschild and corporate governance is questionable in other regards whereas Alliance is now led by a strong independent board.

In conclusion, and these are my personal opinions of course, and without seeing the details of any offer that RIT Capital might make, it does not seem to be a straightforward proposition to me that Alliance Trust shareholders should welcome any offer from RIT with open arms and without careful consideration. It would certainly seem wise to consider other options in the meantime.

Roger Lawson

One comment
  1. Stephen Burke says:

    I think the performance figures are rather a red herring because RCP’s portfolio is very different from ATST or any mainstream trust. As an RCP shareholder that’s why I hold it, if it turned itself into a standard FTSE world quasi-tracker I’d probably sell as it wouldn’t give diversification. Also on the premium/discount, it may have something to do with the fact that a couple of years ago it started paying dividends out of capital profits, so it went from low-yield to high(ish) yield. Presumably a lot of the shares are tightly held which may also make it easier to limit the discount.

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