26 October 2018 Lord Smith, Chairman, Alliance Trust

First published within the Courier & Advertiser 24 October 2018

Time to let go as Alliance Trust sell savings arm

Like watching your child move out, selling a business you’ve nurtured from birth is hard to do. But in the case of Alliance Trust Savings (ATS), we think it’s in the best interests of all our stakeholders — Alliance Trust PLC shareholders, ATS customers (many of whom also own Alliance Trust PLC shares) and ATS employees - to let go.

Now is the right time to pass it on to new owners who are better placed to help it realise its full potential.

ATS started out as an in-house savings scheme for the Trust. It proved very popular, and today it represents 34% of the shareholder base. But ATS has expanded significantly beyond its original remit. It’s now a fully-fledged investment platform offering investors access to a wide range of funds. With more than 300 employees, many more than the Trust itself, it also provides valuable employment opportunities in Scotland. We are proud of what’s been achieved so far.

ATS operates in a highly competitive sector with tight profit margins. It is an industry that requires large-scale assets under management to generate the investment necessary for continual business development, maintaining ever-increasingly stringent regulatory obligations and keeping up with advances in technology to provide excellent levels of customer service.

It's also an industry that is consolidating. In April 2017, the board of Alliance Trust launched a new business strategy to generate capital growth and income from investing in global equities.

Since launching this new strategy, we have continued to simplify our business model. Two years ago, we sold Alliance Trust Investments, our former in- house investment manager, to Liontrust Asset Management, where it is thriving.

A few weeks ago, we agreed the sale of most of our private equity interests, freeing up more capital to be reinvested in the global-equity portfolio. In July, we announced that we had received a number of expressions of interest in ATS, each of which saw a core role for its operations going forward, and in our view, Interactive Investor (ii) is the ideal buyer of ATS as it enters its next stage of development.

Established in 1994, ii is the UK’s second-largest retail investment platform, with 300,000 clients and £20 billion of assets under administration. While the transaction is subject to approval from the PRA and FCA, we have announced our intention to sell ATS to Interactive Investor.

It is our firm belief that ii and ATS businesses are an excellent match. They both provide a great-value proposition for the UK retail investor. They both have a simple and fair flat fee pricing model that differentiates them significantly from other investment platforms, and they both provide similar investment services. The combined organisation will have the additional scale required to be able to invest in products, and provide the high and rising service levels required by our customers.

ii will provide ATS customers — and by extension Alliance Trust PLC shareholders — with an equal or broader set of investment products, and a similar flat fee, market-leading access to international markets, and award-winning editorial content to help them make their investment choices.

In turn, ATS will provide ii with a compelling opportunity to expand into the intermediated market as the only flat-fee-advised investment platform in the UK. In a recent comparison between the two businesses, ii came out top, with reviewers highlighting its superior investment, offering research and educational materials, and its mobile-trading platform.

We also think the sale of ATS provides the best and most exciting opportunities for the ATS team. A key consideration for the board was a commitment to maintaining ATS’s presence in Scotland, and we are therefore very pleased that ii plans to invest in ATS’s Dundee operating centre. ii is a strong and growing business, that is at the forefront of its industry and we believe it is the best home for ATS and all of its stakeholders.

Dundee is regenerating, as demonstrated by the recent opening of the V&A museum to international acclaim, and we are pleased to be building on that momentum by finding a new owner to take ATS forward.

Ofcourse, there will inevitably be adjustments and changes as the two businesses integrate, but we are reassured by ii’s strong track record of acquiring and successfully integrating complementary businesses. The most recent example of this was the acquisition of TD Direct Investing (Europe) Limited and TD Bank International SA in June 2017. Through buying these businesses, ii has experience of managing change for both customers and employees.

Of all the possible buyers of ATS, we are pleased to be entrusting our progeny to their capable hands.

This announcement is further progress against our 2017 strategy, and once the transaction completes, the disposal will leave Alliance Trust better placed to serve the needs of its shareholders, as it focuses on generating capital and income from investing in global equities.

This is an open letter prepared by Lord Smith of Kelvin, non-executive chairman of Alliance Trust PLC.

Lord Smith of Kelvin, Chairman

 

First published within the Courier & Advertiser, 24 October 2018.

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