Funds place faith in a quiet word

By ELLEN READ markets writer

New Zealand fund managers have defended their failure to take a public stand on poor performance by companies in which they own shares.

They say they prefer to give managements the message privately.

Shareholders Association chairman Bruce Sheppard sees no reason why institutions should not co-operate with the association on action or campaigns.

"Institutions generally don't exercise their voice," he said.

"Their voting record is equally appalling, even though they have huge clout.

Sheppard said shareholders were business owners, and had a responsibility to society to ensure the business provided the best possible returns and outcomes.

"They have a national social duty, and by not acting on it they are letting everyone down," he said.

Joseph Healy, head of regional investment banking and private equity at ANZ Bank has spent several years researching corporate performance in New Zealand.

He said the failure of institutional investors to use their muscle was an important factor in performance.

Institutional shareholder activism had yet to register in New Zealand, Healy said, a problem which was underlined by the fact that so much of our equity market was owned by overseas institutions which understandably had little interest in effective monitoring.

Simon Botherway, head of equities at Brook Asset Management, is one fund manager who does speak out on the record.

"We have been proactive when it's required," he said.

"We see ourselves as acting in the best interests of our clients.

Botherway said he preferred to discuss concerns with companies in private initially - "as you have to be sure of the facts" - but public questioning also had its place.

"We're not looking to be a Robin Hood for the public good. Our clients pay us to act in their best interests," he said.

Other fund managers, speaking off the record - which is indicative of the criticism they have had - said they frequently talked to companies.

"Where we're not happy about what's going on, they know about it," one said.

Companies often consulted fund managers about big events such as board changes or capital restructuring.

"The Shareholders Association tends to react when things happen,"the fund manager said.

"To a degree that's valid, but that's part of our daily routine. We get plenty of opportunity to give the companies feedback."

Andrew Bascand, who helps manage $850 million of shares at Alliance Capital Management, said that compared to others in the world, New Zealand fund managers were active in corporate governance.

For New Zealand fund managers, individual stock positions tended to be more meaningful in terms of the percentage of a company held - mainly because there were fewer stocks to chose from - so the fund had more at stake.

Bascand, like the others, said private meeting and letters were the preferred option for voicing concerns.

"Rather than the public domain which often gets a high media profile and can be quite antagonistic," he said.

Usually, a private chat achieved more than speaking out publicly, Bascand said.

Sometimes, funds cannot act. If they provide passive money, they are not allowed to vote or they will jeopardise their tax status.

As well, a quarter of the New Zealand market is held by global funds which , while happy to invest here, do not see the market as large enough to warrant much active involvement.

The Takeovers Code, which restricts shareholdings of more than 20 per cent without a full takeover offer, also stops funds acting collectively if their combined holdings would push them over this limit.