Alliance Trust, the UK’s largest investment trust, promised to make “ongoing, flexible” use of share buy-backs as it saw off a substantial challenge from activist investors.

The Dundee-based company revealed that it had bought back 14.8m of its shares since February, including 3.1m acquired on Thursday.

Laxey Partners, a hedge fund, had criticised Alliance’s previous failure to buy back its own shares to close the trust’s discount to its “net asset value” – the value of its holdings in other companies.

Alliance, which has £2.5bn under management, told its annual meeting in Dundee on Friday that it had bought in the shares at an average discount of 16.2 per cent, and the discount was now down to 15.2 per cent – compared with 20 per cent at the start of the year.

The average sector discount is 8 per cent.

Rival trusts such as Witan and Foreign & Colonial promise to buy back shares when they reach a discount of 10 per cent.

Laxey, which specialises in closed funds and property investment, tabled a motion calling for the introduction of a similar formal discount control mechanism.

It was defeated by 66.52 to 33.48 per cent – a significant show of support for Laxey.

Alliance had argued that forced share buy-backs would raise costs for investors and hamper its investment freedom.

Katherine Garrett-Cox, chief executive of Alliance, said Laxey’s intervention had been unhelpful, but conceded that it had sharpened the company’s focus.

“Good things can sometimes come out of bad,” she said.

Colin Kingsnorth, co-founder of Laxey, told shareholders he welcomed the board’s change in policy.

“It was bit of a ‘road to Damascus’ moment in terms of buy-backs,” he said.

“I don’t think, in all honesty, it would have happened if we had not tabled a resolution.”

Before Laxey began agitating last November, Alliance had conducted just two buy-backs in its history – both from specific sellers.

Elliott International, another activist investor, took a 3 per cent stake in Alliance Trust, in April, but has not commented on its motives for doing so.

Laxey had accused Alliance of offering institutional shareholders assurances on buy-backs behind closed doors, arguing that it should “come clean” to all its shareholders about the nature of any private talks.

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