Interesting times are promised for us shareholders/customers of Alliance Trust. For the second time in under three years, this £2.5bn company has a shareholder on the register who may not be prepared to put up with the combination of cheerful projections and pedestrian performance that have characterised its recent history.

Elliott International, frequently described as a US-based vulture fund, has disclosed a 10 per cent holding in Alliance. It’s unlikely that Elliott seees such glittering prospects in Alliance’s stock selection that it’s put in £230m for a part of the action. Not a great communicator, Elliott is more likely to be eyeing the £310m gap between the value of the shares in its portfolio and the market capitalisation.

Last time the awkward squad appeared on the register, Alliance, quite co-incidentally, announced that it had decided to buy in its own shares for cancellation (thus enhancing the value of the rest). It pursued the new policy with the fervour of the convert, buying in almost daily, and the discount has shrunk to 12 per cent today.

There may not be cause and effect here – discounts have narrowed right across the trust sector – but it was at least a sign of life. Since vultures prefer their prey dead, Elliott’s appearance was somewhat unexpected. Alliance is an unusual investment trust in that it manages its own portfolio. It has also attracted a little outside capital, but it has invented a rather good fund administration business, ATS, which after losing money for several years is now profitable.

It’s rather good because, unlike almost every other similar business, it charges a flat fee to look after your SIPP or ISA (you have to pick the stocks), so the gains are not skimmed off but instead all accrue to the owner of the capital. With the truth about charges in the fund management industry seeping out following the new rules on disclosure of fees, ATS is seeing strong inflows.

As for the main portfolio, Alliance is doing better than it had been, even if it’s still far from best in class. Where it is close to the top is in its management fees for the trust istelf, which are much lower than the average. This is where a vulture might see opportunities.

Were Elliott to gain control, or to force a change in philosophy, a new team could see plenty of possibilities for raising charges, and scrapping such customer-centric ideas as flat fees. The rest of the fund management industry would be pleased to see a low-cost provider disappear, to keep the percentage-fee gravy train on the rails.

It’s unlikely that Elliott’s ambitions are quite that high. It’s more likely to be looking for some Dane-geld, in the form of a pledge to keeping grinding the discount down, or of a tender offer for a slice of shares at close to net asset value. Alliance shareholders should be on the alert, and remember that once you have paid him the Dane-geld, you never get rid of the Dane.

Rescued Sun Alliance

It’s fortunate that Stephen Hester, the go-to boss for big-ticket financial emergencies, has seen so many balance sheet horrors. A lesser man might have reeled at the shocking truth in RSA, the insurance company which seems to have been a small step from disaster.

The £300m-odd that a quick cashbox (as suggested here last week) might have raised is now clearly inadequate. Instead, the medicine is a full-blown £775m rights issue, fire sales of foreign businesses and the purchase of some extra reinsurance. There’s no dividend for at least another year. Mr Hester’s comment that RSA had become “gradually undercapitalised and overleveraged” at least sounds better than “managed to the brink of ruin.”

Given the scale of this financial pile-up, the fees paid to the bankers look as important as the loss of your no-claims bonus in a smash. With RSA desparate for capital, the banks will have hoicked up their usual eye-watering fees for finding it. We must wait for the final terms to find out, but we’re being softened up with comments about sub-underwriting sweeteners for the biggest shareholders. Tough, once again, on the rest of them, but hardly a surprise. After all, Mr Hester is a banker himself.

This is my FT column from 1 March

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