WHEN Katherine Garrett-Cox announced she was quitting her job as chief investment officer at Morley, the fund management subsidiary of insurance group Aviva, to move to the investment “backwater” of Dundee, it prompted much speculation in the pubs and wine bars of the City.
The consensus was that “Katherine the Great” was opting for the easy life. After all Katherine Garrett-Cox, a 39-year-old mother of four who has been likened to the City’s favourite superwoman Nicola Horlick, was responsible for funds of £166 billion at Morley. At Alliance Trust she would be responsible for only £2.9bn.
However, suggestions that Katherine Garrett-Cox has “downshifted” appear wide of the mark. Indeed she seems to be relishing the challenge of transforming Alliance Trust into a more progressive and dynamic institution and is taking things at a considered but frenetic pace.
On her arrival at the 119-year-old trust’s Dickensian offices at Meadow House, 64 Reform Street, Dundde in May, she spent several weeks carefully listening to the views of shareholders, management and staff.
“I didn’t want to come in with any preconceived notions,” she says.
It soon became clear, however, that investors’ biggest gripe was that recent investment returns at the trust have been far from stellar. Indeed, because Alliance Trust prematurely sold off 7 per cent of its equity portfolio in October 2006 and moved the proceeds to cash, it missed out on the buoyant markets at the start of this year.
The move was sound in principle, just a trifle early. It meant Alliance became the worst performer in the global generalist investment trust category over the past 12 months, a period during which it has been trumped by rivals including Foreign & Colonial, Monks and Witan. It also saddled it with a 16.5 per cent discount between its net asset value and its share price, which angered some investors.
Four months into the job, Katherine Garrett-Cox says her top priority is to tackle investment underperformance and, by extension, the discount. She says as soon as she arrived in Dundee she “threw down the gauntlet” at a meeting with the trust’s 26-strong investment team, inviting a discussion of how performance might be turned around.
Already, she has made some pretty dramatic changes. On the equities investment front, she disposed of almost its entire holding in Japan (some £160 million of Japanese equities), with the proceeds being reinvested in North American and Asia Pacific equities.
She also persuaded the Alliance Trust board, chaired by the former Kleinwort Benson investment banker Lesley Knox, to take out a £150m borrowing facility (called “the gearing” in investment trust parlance) with a view to engaging in opportunistic buying of weakened shares during the down markets seen in late July and early August.
Katherine Garrett-Cox — who earned her investment stripes at Hill Samuel Asset Management in the 1990s and has since had chief investment officer roles at Aberdeen Asset Management and Morley — seems fully committed to continuing the process of diversification started by her predecessor as CIO, Alan Young.
As part of the move out of equities and into alternatives, including commercial property and private equity, the trust is seeking to develop its in-house expertise in managing both these asset classes, where previously it had no track record. Katherine Garrett-Cox says: “There’s no doubt we would like to diversify the overall portfolio so that we can generate returns in good markets as well as in less good.”
However, Tom Tuite-Dalton, an analyst at Arbuthnot Securities, is sceptical about the approach.
He says: “By broadening its fund management base, you might argue that Alliance Trust runs the risk of becoming a ‘jack of all trades but master of none’. The jury is out as to whether the benefits of these changes will outweigh the costs.” He is concerned that the trust’s total expense ratio has risen threefold since 2003 from 0.5 per cent to 1.53 per cent today.
However, Katherine Garrett-Cox seems unlikely to be stopped in her tracks by such naysayers. Indeed, she has even more radical and costly plans up her sleeve. These include the opening of an investment office in London (partly because not every talented fund manager wants to move to Dundee) and the launch of a new investment management boutique under the Alliance Trust umbrella. There are parallels with the small boutique that Alliance Trust established in Hong Kong last year.
She says: “I would hazard a guess that the first things [the new boutique] will be launching, hopefully in a year from now, will be equity products, because that’s the core of what we do.” She notes that funds being considered include a global equity fund, a UK equity income fund and an SRI (socially responsible investment) or environmental fund.
Tuite-Dalton questions the logic of this planned move. He says: “Even with Katherine Garrett-Cox at the helm, growing external funds under management could be a long slow process. The difficulty is that few people associate Alliance Trust with being experts in venture capital or Asian fund management and such an image problem can only be overcome with solid performance track records that can take decades to achieve.”
Garrett-Cox acknowledges that building a third-party investment business will take time but seems confident it can be achieved using the trust’s existing 26-strong investment team.
She became familiar with Scotland through her marriage to the ING investment banker and part-time bass guitarist Jeremy Garrett-Cox, whose family come from Doune in Perthshire. She seems delighted to have left the grime of London behind her, and to have exchanged it for the fresh clean air of Tayside.
People who have worked with Katherine Garrett-Cox in the past are strong in their praise. Rupert Della Porta, head of US equities at F&C Asset Management, says: “She is inspirational. From our time together at Hill Samuel and Aberdeen, I would describe her as very good at running a team, very good at representing a team internally, and externally to investors. At the same time she brings in a bit of levity.”
However, Katherine Garrett-Cox personally resents the superwoman tag, partly because of its sexist undertones. She says she cannot understand why, just because she combines a senior investment job with being a mother of four, she merits such a sobriquet, or why she is constantly asked how she balances raising four young children with a high-powered investment role. “I don’t think there are too many male fund managers with four children that get asked how they cope,” she remarks.
So what was it that persuaded her to throw in the Morley job and move to the much smaller Alliance Trust?
More than anything, she says she was swayed by the “enthusiasm, commitment and drive” of Alliance’s chief executive Alan Harden, who took over the CEO role in January 2004. Katherine Garrett-Cox said: “The hook for me was the chance to come in and help change the business and have strategic input on the board.” It obviously helped that she and her husband, Jeremy, had a home near Brechin.
However, observers have yet to be convinced that Katherine Garrett-Cox will be able to turn things around. Charles Cade, an investment trust analyst at Wins, says: “She is trying, with the backing of Alan Harden, to make it punchier. But it’s still early days and far too early to assess her track record.”
Some are harsher. One investment source said: “The general view in the investment business is that Katherine Garrett-Cox was not at either Aberdeen or Morley long enough to really judge her achievements. There’s a danger that her appointment is a bit like adding a fancy spoiler to a classic motor car. It might look good, but it won’t necessarily improve the performance.”
Others are prepared to give her the benefit of the doubt.
Katherine Garrett-Cox sums up how she sees here role by saying: “I want to ensure that every little cog in the Alliance engine is well-oiled and able to move faster than it has done in the past.
“Historically we have been seen as a very safe pair of hands. But we also need to ensure we don’t get caught in a time warp.”
Alliance Trust – a long history
ESTABLISHED in 1888 when three Dundee-based land and mortgage companies — the Dundee Mortgage & Trust, the Dundee Investment Company and the Oregon and Washington Trust — merged.
Alliance Trust started out by investing in US railway bonds, mineral rights and fixed-interest securities before switching into bonds and equities in the 1920s.
It was the first investment trust to launch a dividend reinvestment scheme and the first to launch a financial services subsidiary, ATS.
Today this has 45,000 customers.
The trust was enlarged in June 2006 when Alliance Trust and Second Alliance Trust merged.
Assets under management – £2.9 billion.
Global presence – offices in Dundee, Edinburgh and Hong Kong.
KATHERINE GARRETT-COX – 30-SECOND CV
Born – November 1967
1990 – Graduated with a BA in history from the University of Durham
1990 – Assistant US fund manager at Fidelity Investments
1993 – Appointed as head of US equities at Hill Samuel Asset Management
2000 – Chief investment officer at Aberdeen Asset Management
2004 – Chief investment officer and board member at Morley Fund Management
2005 – Nominated as member of young global leaders, part of the World Economic Forum
2007 – Chief investment officer and group executive director at Alliance Trust.
This article was published in The Scotsman on 27 September 2007