Alliance Trust has come under further fire over its refusal to adopt a discount control mechanism (DCM) after Laxey Partners alleged that it is hiding a 'shocking rise in total expenses'.

The Isle of Man-based investment group claimed the total expense ratio of Alliance Trust, the £2.4 billion investment trust led by Katherine Garrett-Cox (pictured), does not take into account the 'actual cost of subsidising its subsidiaries'.

In an emailed letter to shareholders, Laxey said: 'At first glance and using Alliance Trust's highlighted total expense ratio (TER), Alliance Trust compares favourably to some of its peers. However, Alliance Trust is only showing shareholders part of the picture. If you then add the actual cost of subsidising its subsidiaries the picture is very different.

'In the vast majority of investment trusts, the additional expense of funding these subsidiaries are normally paid by the fund management company out of its own pocket. However, in the Alliance Trust's case, ordinary shareholders are bearing 100 per cent of the costs for no tangible benefits.'

Laxey said company and group expenses have surged in the last five years despite Alliance's 'continuing pedestrian performance'.

Total expenses have risen by 145 per cent at company level and 336 per cent at group level, the activist investor claims.

In comparison the Retail Prices Index climbed by 15.4 per cent and the Alliance Trust
shareholder total return increased by 29.9 per cent.

It is now calling on shareholders to vote in favour of its resolution to introduce a DCM at FTSE-250 listed Alliance's AGM on 20 May.

Laxey wants to put in place a DCM to ensure that the discount to net asset value - the difference between the selling price of the share and the value of the assets - is no more than 10 per cent.

Shares that are bought back are then either cancelled or held 'in treasury' thus shrinking the discount. This currently stands at around 16 per cent.

However, Alliance refuted Laxey's position, claiming that a TER which included the subsidiaries did not make sense. 'Our approach is in common with other consolidated investment companies and is completely accepted and understood by the investment community,' a spokeswoman adds.
 
More details on Alliance's position and its recommendations for shareholders will be released with its full-year results tomorrow.

For more on Alliance Trust, don't miss the May edition of Money Observer, out in shops on 28 April