Frugal bargain hunter eyes Alliance Trust

By Lucy Farndon
Updated: 05:26 EDT, 10 February 2011

Colin Kingsnorth's hedge fund is agitating for a share buyback at investment group Alliance Trust. Interview by Lucy Farndon.

Rich rebel: Colin Kingsnorth claims money is not his prime motivation

Every activist is different, says millionaire hedge fund boss Colin Kingsnorth, lolling back in his second-hand chair.

There are no trappings of wealth in this office, even though the co-founder of activist fund Laxey Partners could afford solid gold chairs if he was that way inclined.

'This table is from eBay, the furniture comes from the Millennium Dome, the trading desk came out of Enron when it went bust,' says Kingsnorth.

'Oh, and that sofa was from Enron's boardroom,' he adds, waving his hand around. He finds it 'a lot more fun' to get bargains on the cheap.

Though Laxey operates out of smart glass-walled offices on London's Jermyn Street - around the corner from Fortnum & Mason and numerous upper crust gentlemen's shirtmakers - Kingsnorth and his business partner Andrew Pegge say they'd rather invest cash in undervalued companies than spend it on fancy accoutrements.

Their latest target is FTSE 100 investment group Alliance Trust, where Kingsnorth is agitating for a share buyback after snapping up a 1.6% stake in the group.

'We are generally pretty tight. Everything is reinvested. There are no yachts, no daft toys - it is not that we don't like them, it just brings us out in a rash,' he says.

'We'd rather give money to charity than waste it on four new cars, if you know what I mean.'

All very noble. Of course, such sentiments are easier to come by when you are already exceedingly rich and were brought up with the advantage of a top-notch education at the expensive Haileybury boarding school.

And Kingsnorth does confess to having a penchant for racing old cars, as well as refusing to put a figure on his wealth when I suggest it is north of £10m.

That said, he does seem 'different' from most activist hedge funds, if only for his relative openness.

Firstly, he answered my phone call this week and agreed to submit to an hour's grilling without any hesitation - not the behaviour one typically expects from secretive offshore-based investment funds.

He happily posed for pictures, spoke about his wife, and chatted about his previous investments and intentions. Though rather hazy on numbers - refusing to confirm reports that Laxey's funds have $2bn of assets or the names of its backers - he is refreshingly forthright about the industry and its shortcomings.

'The thing about activism is it is really good and useful, as long as it's done properly. It is a real pain in the backside if done wrongly.'

One time that the industry did not cover itself in glory, he concedes, was when Laxey's rival TCI forced Dutch bank ABN amro to put itself up for auction in 2007.

This triggered the near-collapse of Royal Bank of Scotland which over stretched itself with a cash bid, and taxpayers had to foot the bill.

Kingsnorth said activist fund TCI 'probably made loads of money out of it' however, it 'was not obvious that [TCI] had an objective that was worthwhile'.

Target: Alliance Trust board 'aren't wicked, horrible people' but the firm has lost its way, claims Kingsnorth

Laxey Partners on the other hand, prides itself on a less destructive approach.

'Everybody draws their own line in the sand,' Kingsnorth says.

'A lot of activists cut deals for themselves. We see ourselves as much more populist, we like to put things forward that are genuinely good for all shareholders.'

Money is not his prime motivation, says Kingsnorth, who named Laxey after the Isle of Man village where he and Pegge used to live as tax exiles.

'I think it almost helps to be disinterested [in money]. I think you are a better investor because you can hold positions longer and be relaxed if you take a loss.'

At Alliance Trust, Laxey is trying to persuade boss Katherine Garrett-Cox to introduce an automatic share buyback when its price is less than 90% of the value of the underlying investments.

Kingsnorth also wants to change the voting structure of the shares which he believes gives the company more clout when pushing its own views.

Laxey owns less than the 5% share threshold necessary to force resolutions to be put to the vote at the annual meeting. But Kingsnorth has got round this by setting up 100 subsidiary companies so he can demand a resolution is voted upon based on the '100 shareholders' rule.

He argues it is a legitimate route for protest. Laxey did the same with British Land in 2002-03, when it fought and won a high profile battle against its autocratic boss Sir John Ritblat.

'There hasn't been anybody [among Alliance's shareholders] saying we don't like what you are doing,' he says, pointing out that more than 100 shareholders have signed up to its Alliance Trust Shareholder Action Website.

He says 'lots' of shareholders have previously suggested that Alliance Trust embark on a buyback, but that the management 'have blown raspberries at them'.

'The only difference with us, is that we will go through all the hassle and say, "Now we are going to make you",' he says.

Amid the publicity created by Laxey's latest open letter this week, Alliance Trust's chairman Lesley Knox has agreed to meet Kingsnorth on Monday. He reckons she will be under 'a lot of pressure' to make changes.

No doubt the top team at Alliance Trust are all too aware of Laxey's high profile success with Ritblat, who was forced into a share buyback and a split of the chairman and chief executive roles. But a more recent tilt by Laxey at Shaftesbury led to it selling out at a loss in 2009.

The Alliance Trust board 'aren't bad, wicked, horrible people - I wouldn't put them in the same camp as John Ritblat', says Kingsnorth. 'They have just got themselves stuck by not updating themselves.'

He says the firm has 'lost its way' and accuses them of making vague assertions about performance.

'They'll say that their US index beat the US market, and you'll think, "Why have they compared it to a biotech smaller company index?",' he says. 'It is very odd.'

Laxey has already made a profit on its stake that was built up over the last nine months, though Kingsnorth is evasive about the average buy-in price. He is, however, completely open about the fact that he won't hang around for the long term.

Laxey would be happy to sell its stake in the next couple of months 'so long as we achieve what we want to achieve', he says. Which is, presumably, a big fat profit - not that the number will ever be disclosed.

It is a strange existence for a man who claims not to be motivated by money. Yet Kingsnorth has spent more than 20 years working at hedge funds and investment firms. Even at weekends, he says he cannot switch off, confessing he will always talk to Pegge and most of the directors.

His wife, a gardening fanatic who ran an upholstery business until the children came along, keeps him grounded. They live in Blackheath, now resident UK taxpayers.

Kingsnorth says fondly: 'She is very down to earth. She is a much stronger character than me. I come from a long line of weak men.'

Modest he may be, but Alliance Trust would be foolish to believe he has anything other than an iron will.