Investment tie-up

Alliance Trust and Witan merger forms £5bn entity

There has been a wave of trust mergers

Alliance Trust and Witan Investment Trust are merging to form one of the biggest players in the UK with assets of £5 billion.

In a joint statement on Tuesday the two companies said Witan’s assets would be rolled into Dundee-based Alliance Trust in exchange for new ordinary shares in the renamed and enlarged Alliance Witan investment trust.

Alliance is the eighth largest investment trust in the UK, and is worth about £3.4bn.

Investors will benefit from a ‘new, more competitive management fee structure’ and expectations of a ‘lower’ ongoing charges ratio, as well as ‘enhanced’ third and fourth interim dividend payments, the statement claims.

The combined entity is expected to be eligible for promotion to the FTSE 100 Index in due course.

The deal is scheduled for completion in late Q3/early Q4 and preserves heritages of both companies. It represents the largest ever conventional equity investment trust combination.

Dean Buckley, chair of Alliance Trust, said the merger was a “key milestone” for the industry and would result in lower management fees and other charges for investors.

Both trusts employ a multi-manager approach, allocating funds to selected managers with different styles.

Investors have moved away from trusts causing share price discounts to net asset value, with the average discount at 15% this month, according to the Association of Investment Companies.

In response, thee has been some consolidation in the sector, including Fidelity and Abrdn’s £1.2bn China trust merger, while the UK’s biggest investment trust, Scottish Mortgage, announced a £1bn share buyback earlier this year in an attempt to support its share price. Hedge funds have also taken an interest in the sector.

Laith Khalaf, head of investment analysis at AJ Bell: “This is a blockbuster merger of two of the biggest and oldest names in the investment trust world.

“The deal will result in lower annual charges for investors, as well as preserving the long dividend track records of both trusts.”

The share price of both trusts rose on the back of the news, especially Witan, suggesting the market thinks the deal provides decent value to both sets of shareholders.

Mr Khalaf added: “Inclusion in the FTSE 100 is likely to increase liquidity and visibility for Alliance Witan, though most passive funds tracking the UK stock market follow the FTSE All Share, and most active funds eschew investment trusts, so we shouldn’t expect this to be a total gamechanger.

“Scale is likely to be the greater driver of liquidity, with institutional investors and pension funds feeling more comfortable dabbling in a larger vehicle, because they can make a meaningful investment without owning too much of the trust.

“There has been a great deal of consolidation in the investment trust industry, driven by high discounts and falling asset values. But that’s not what’s going on here; both these trusts have significant assets and are big enough to keep ploughing their own furrows if they so wished.

“The announced retirement of Andrew Bell, fund manager of the Witan trust, appears to have been a critical catalyst for the merger. The search for a successor led the Witan board to the deal with Alliance Trust.

“This may have been to preserve the investment approach, seeing as single-strategy multi-manager funds like Alliance Trust and Witan are a rare breed nowadays, largely displaced by risk-rated multi-asset funds.”

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