UPDATE 2-Hedge fund Laxey seeks change at Alliance Trust

Mon Feb 7, 2011 1:12pm GMT

Quotes

   

* Wants discount control, changes to savings scheme voting * Owns 1.5 pct, put forward plans by forming subsidiaries

* Says can count on support of majority of institutions * Activism now focused on restructuring rather than M&A

(Adds Laxey comment, detail)

By Laurence Fletcher and Sudip Kar-Gupta

LONDON, Feb 7 (Reuters) - Activist hedge fund Laxey Partners demanded changes at 123-year-old investment company Alliance Trust (ATST.L) to boost its shares, the latest example of rebel shareholders putting pressure on a fund management company.

Laxey, which has a 1.5 percent stake but which has set up subidiary companies to let it punch above its weight, said in letters to the trust and to shareholders that Alliance should set up a mechanism to limit the discount of its shares to net asset value (NAV), currently 16 percent.

A number of investment trusts have a floor below which they will buy back shares in order to try to narrow the discount, allowing shareholders wanting to sell to exit closer to NAV.

"They stand out a mile as having a big discount," Colin Kingsnorth, partner at Laxey Partners, told Reuters. "It's resisted change and the world's moved on a bit."

Isle of Man-based Laxey's move comes a week after activist investor Edward Bramson ousted the chairman of F&C Asset Management FCAM.L and pledged a shake-up of the British funds firm. [ID:nLDE7121LL]

Laxey also wants Alliance to change the voting process in its savings scheme, which it says means some shareholders' votes are used by others if they haven't given specific instructions on how their votes are cast.

Kingsnorth told Reuters Laxey can count on "the majority of institutional support ... approximately half the (shareholder) register" and said Laxey plans to increase its Alliance stake.

While admitting Laxey does not have "a dominating percentage", he said the fund had been able to put forward its resolutions at the forthcoming annual general meeting by forming 100 different subsidiary companies -- fulfilling a criteria that new proposals are backed by at least 100 groups.

Despite a recent uptick in shareholders flexing their muscles, Kingsnorth said activism had changed since its pre-crisis heyday, when The Children's Investment Fund (TCI) famously launched an attack on ABN AMRO in 2007 that helped trigger the Dutch bank's sale.

"What's working (now) is restructuring activism. (Bramson) is not putting F&C up for sale, he's trying to make it work.

"If five years ago you'd tend to see hedge fund rush in (to activist situations), that's not happening today. What tends to happen is that you go round more traditional institutions to see if the proposal makes sense to them."

At 1155 GMT Alliance Trust's shares were up 0.2 percent at 367.4 pence while the FTSE 100 .FTSE was up 0.8 percent. (Editing by David Holmes)