Sunday 19 January 2014

Code for institutional investors

I have often written about the lack of what I call GLF's (Government Linked Funds) in shareholder activism in Malaysia, for instance:

Let’s have real shareholder activism
Institutional investors have to fight
A death knell for shareholder rights


"They have been very disappointing in the last decades, they could have been vocal, they could have voted against controversial deals (especially Related Party Transactions), they chose to stay silent and toe the line. I am sure that if they had issued press releases in the past, announcing how they would vote and why, that newspapers would be more than happy to print their views.

They helped to initially fund MSWG, it looks like these GLF's found that that was enough for them, they let MSWG do the talking and stayed further passive.

I really hope their mentality will change soon; they are managing other people's money and thus have a huge responsibility. We are now Anno 2011, a world where people demand transparency; these GLF's should update their websites, give insights in their holdings, their voting behaviour and their explanations for it, etc."

One of the prime examples of this can be found here, it involves a very controversial RPT cash deal by MMC taking over Senai (a loss making airport) in the midst of the global recession. MSWG tried to organize a meeting, but the following funds could not attend due to "some other work commitment":
  • EPF (Kumpulan Wang Simpanan Pekerja)
  • PNB
  • KWAP (Kumpulan Wang Persaraan)





MSWG and the Securities Commission have issued their "Malaysian Code for Institutional Investors 2014", it is now open for public consultation, the document can be found here.

Some comments:
  • What I miss is a general description of the "landscape", mostly some numbers like how much have the institutional funds invested compared to the total market cap of Bursa, in how many listed companies, in how many companies do they have a controlling stake, etc.
  • The members of the Steering Committee are almost all from the GLF's, I would have loved to see some participation of non-government linked fund managers like Aberdeen (who is known to fight for the interest of their investors), Public Mutual, etc.
  • The paper is luckily quite short and definitely readable, but also on rather high level and thus pretty general; I like more concrete stories from the trenches, what are the really big cases (in my opinion most minority shareholders value has been destroyed through: delisting, relisting, RPT's, private placements), how are they going to tackle those?
  • In paragraph 3.4 a list if given how institutional investors can make their concerns known; I think an important avenue is left out, if a company "misbehaves" and (despite feedback given by institutional investors) doesn't repent, then reaching out to the media should definitely be considered. This has happened on many occasions in (mostly) Western countries, and sometimes with success.
  • Paragraph 3.5 relates to seeking legal remedies or arbitration. Institutional investors should understand that this is an avenue that is almost impossible for retail investors, the costs do not compensate for possible gains. But institutional investors have often large holdings, and for them it should be a serious consideration. This avenue has so far been neglected.
  • Chapter 6: "Institutional investors should publish a voting policy", on important issues (like the ones I described in the previous sentence), I think fund managers should be transparent and publish their specific voting in major issues; people who trusted their money to these asset managers are entitled to know how the asset managers voted.

At the end of the day, the proof is in the pudding, we have to wait and see if there will be a substantial improvement in the involvement by the GLF's, not only passively (behind the scenes), but also more openly and actively ("on the barricades").

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