Forum Archive Index - October 2000

["Ben Dutton" <bendutton@sharechat.co.nz>]

Interesting reply to Peter's post, Malcolm - I've thought about it all day. 

 

When you say "That is the fund mangers job, to make a return for the fund and for the funds investors (as you appear to expect), not to fix up the company because it is getting into difficulty, or make it accountable to shareholders" I have to disagree.

 

I think that if a fund manager has a holding in a company then that manager has a vested interest in seeing the company do well - sure, as you say they can easily quit if they don't like what they see, but what happens if the company *could* do well, if only it had the right management? 

 

For instance, say company XYZ is in an industry in which it could be very profitable, but years of mismanagement by the directors have destroyed the companies earnings and shareholder value.  Are shareholders going to walk away and say "oh well, can't fix that one up, better bail" or are they going to get in there, make sure the bad apples are removed and thus help re-create company and therefore shareholder wealth?

 

If they do, there's a good probability that the fund manager can actually make a better return for his/her fund by being proactive and helping shape the companies management.

 

I'm sure that many fund managers (especially overseas where shareholder revolts are commonplace) would say that, as owners of the company, they would expect to be listened to.

 

Certainly in the United States, institutional shareholders are very powerful within the companies they have holdings in.  CEO's and Director's are sacked all the time (example - Lucent's CEO being removed just today - Lucent's big shareholders had been screaming for him to go after years of underperformance - they got their wish).

 

I did a search in the NZ Herald site and pulled up an old article by Brian Gaynor about shareholder activism in New Zealand - well, the lack of shareholder activism really.  Have a read:

 

http://www.nzherald.co.nz/storydisplay.cfm?thesection=business&thesubsection=&storyID=145265

 

(unfortunately the URL wraps  - you'll have to cut and past the two lines together - sorry).

 

Here are a couple of important paragraphs from the article:

 

"In New Zealand, shareholder activism is disorganised and impotent. Effective monitoring of companies is an important aspect of a free market economy but deficiencies in this area are having a negative impact on the sharemarket and economy.

Fund managers, who are amongst the strongest advocates of the free market model, are particularly poor monitors. They are rarely seen or heard at company meetings. Institutional investors meet privately with management but not with directors."

Perhaps if some of the larger shareholders of some NZ companies pulled the directors up and reigned them in or had them removed we wouldn't have seen such a large-scale destruction of shareholder wealth in certain companies on the NZSE.

Or maybe not?  Maybe we should just be content with the status quo?

I'd be interested in hearing other people's views on this topic - should larger shareholders be more proactive in this country?  Do we need a shareholders association to promote the interests of smaller shareholders?

Comments welcome :-)

Best Regards

Benjamin Dutton

 

----- Original Message -----

From: Malcolm Eves

To: sharechat@sharechat.co.nz

Sent: Tuesday, October 24, 2000 9:54 AM

Subject: Re: [sharechat] FFS shareholders

Peter,

It may be a good idea for you spend some time talking to fund managers before making too many assumptions. Many are very active in making regular company visits and talking business issues through with the company management, but quite properly leave the running of the business to the management. However they make the calls about how long the association / investment is to last and will exit from the register if they think that management does not look to be taking care of issues that concern them. e.g. why did Armstrong Jones exit IT Capital ( for a significant profit )? - because they felt that the Singapore connection meant that the company  would lose it's focus and that management become answerable to an influence they wouldn't understand as closely as before. That is the fund mangers job, to make a return for the fund and for the funds investors (as you appear to expect), not to fix up the company because it is getting into difficulty, or make it accountable to shareholders. After all they are usually individually only a small minority on a company register and due to competition with other managers to attract funds will not work in collusion to "save" a company from incompetence.

Also, have you taken time to notice how well active fund managers in the NZ market have performed lately? Most are showing significant outperformance over the NZSE 40 index and have proven their worth in a very difficult market.

----- Original Message -----

From: P Maiden

To: sharechat@sharechat.co.nz

Sent: Thursday, October 19, 2000 7:27 AM

Subject: Re: [sharechat] FFS shareholders

.......and may they grow into large pines.

 

I do not have a direct interest interest in FFS but no doubt my 'voluntary' contributions to a super scheme are affected. However an interested observer.

 

The recent FFS events have been a fiasco. Posts to this forum have blamed many.

 

One group who seemed to have been left off the list are the institutional fund managers. I haven't got a FFS annual report so I don't know who the big investors are.

 

One of the main reasons that many NZ companies have destroyed billions of shareholder value over the past decade or so is that these fund managers have 'passively' sat on the sidelines and not made any of the (poor performing) companies they invest in accountable for their performance.

 

Most fund managers (whether passive or active) do not appear to take the value of any company they invest into account. As long as their own performance is slightly better than benchmarks and other funds they seem happy. Keep to the mainstream and mirror other funds - don't get too far out of step as to expose yourselve to others winning when you are not on the bandwagon seems to be their motto.

 

We have heard little what these big investors think about FFS - or what they are going to do about the rights issue. These fund managers appear to forget that is not their money they are investing - but a lot of many indivdual's life savings.

 

I wonder what these managers are doing - trying to get some value back into their FFS investment? smile and pay up when the money is due at rights time?  expressing their disgust or whatever (on behalf of their own investors) to the FLC board.

 

The impact goes beyond all you small/big  investors out there.

 

Ironically I think a lot of the recent investmnet in FFS also came from the windfall from FLP.

 

 

Peter