Trust 'marriage' hits trouble near altar

AN ambitious attempt to merge up to ten Scottish investment trusts run by six management firms is causing fur to fly north of the border - all the more since the marriage broker is English.

But the idea from Advance UK Trust has persuaded at least one of the managers to agree a meeting this week to discuss it. Advance manager James Carthew first suggested that Alliance Trust and Second Alliance, run by the same firm in Dundee, should merge. Then he broadened the idea to ten trusts worth £8bn. The Alliance funds have a good record, but Second's shares were seldom dealt and were knocked out of the FT 250 and FT All-Share indices.

They later drifted to a 17% discount to assets. Advance UK, which owns 1.5%, decided something had to be done.

Carthew says: 'Merged, the two would be worth nearly £2bn. Adding one other trust would make it big enough to join the Footsie 100. Trading would be easier.'

If he cannot achieve a 'big bang' merger Carthew would like to see in-house trust mergers.

He says: 'The problem is investment houses do not like to lose their fees, or boards to lose their jobs. That makes the status quo the favourite. But part of our remit is to encourage new thinking.

'Bigger funds would spread marketing costs more effectively, and fight off predators.' He points out that when small specialist trusts in Latin America resisted pressure to merge, many were taken over or closed.