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* Ends five-year campaign to overhaul structure at Alliance
* Elliott welcomes move, to sell back its 19.75 pct stake
* Alliance Trust shares up 0.4 pct in flat FTSE All Share (Recasts, adds background, updates share price)
By Lawrence White and Simon Jessop
LONDON, Jan 27 (Reuters) - Alliance Trust, one ofBritain's oldest investment managers, agreed on Friday to buyback shares held by a U.S. activist hedge fund, bringing an endto a campaign that has forced it to reform how it is run.
Dundee-based Alliance, which traces its roots to the late19th century and loans to farmers across the British Empire,said it would buy back a 19.75 percent stake held by U.S.billionaire Paul Singer's Elliott Management.
It marks an end to an at times bitter five-year campaign onthe part of Elliott to force the Scottish asset manager toimprove its performance, including through a radical overhaul ofboth the board and the firm's investment process.
Casualties along the way included former chief executiveKatherine Garrett-Cox, one of the City of London's highestprofile businesswomen, who was forced to step down from thegroup's board in October 2015.
Sustained pressure from Elliott also resulted in Alliance changing the way it invested, moving to outsource its equitystock-picks and management to an external advisor and group offund managers at other companies.
"Elliott has done quite nicely out of its stake in Alliance,and has instigated wholesale change at the investment trust,though it still remains to be seen whether that is to the longterm benefit of shareholders," said Laith Khalaf, senior analystat investment advisor Hargreaves Lansdown.
"The withdrawal of Elliott from the shareholder registershould lead to more stability for the trust, which now needs tofocus on making sure the new investment strategy delivers."
Elliott's stake is worth around 632 million pounds, based onAlliance's current market value of 3.2 billion pounds ($4billion). While Elliott declined to say how much is profit,Alliance stock is up 92 percent since the end of December 2011.
EXIT ROUTE
As a 'closed ended' investment trust company, Allianceraises money from investors in exchange for shares in the firm,which then trade at a discount or premium to the value of itsinvestment portfolio.
The launch of a share buyback follows agitation from Elliottfor an exit route after the gap between the share price and thevalue of Alliance Trust's assets closed to less than 5 percentfrom as wide as 15 percent.
"Elliott welcomes the opportunity to participate in theoffer being made to all other shareholders under the buybackprogramme," a spokeswoman for the activist investor said in anemailed statement.
The repurchase, at a 4.75 percent discount to the value ofthe shares, requires approval by Alliance's independentshareholders, Alliance Trust said in a statement.
"Hedge funds tend to have a reputation as disruptive shortterm investors. In this case, however... we believe its activismhas resulted in a far more attractive vehicle for allshareholders," analysts at Numis said in a note to clients.
"It is encouraging that the agreement with Elliott isbroadly in-line with the discount level of previous repurchases,and also that the Board has committed to further buybacks at thesame level."
Alliance Trust shares were up 0.4 percent at 1045 GMT,narrowly outpacing the FTSE All Share index.
The firm ended up more than 23 percent in 2016,outperforming peers including RIT Capital Partners, theinvestment trust run by financier Jacob Rothschild, which hadmulled a takeover bid for Alliance. ($1 = 0.7962 pounds) (Editing by Keith Weir)
