ASX urged to increase disclosure on listed funds

According to RiskMetrics, a corporate governance advisory group, investors in publicly listed funds, such as those managed by Macquarie and Babcock & Brown, are being kept in the dark about the funds' contractual arrangements.

The Australian Stock Exchange (ASX) is being urged by corporate governance advisor RiskMetrics Australia to increase its disclosure requirements on publicly-listed asset vehicles such as those managed by the Macquarie Group and Babcock & Brown.

According to RiskMetrics, the ASX should require all listed vehicles with external management agreements to disclose the full text of those agreements in the same way that the United States Securities and Exchange Commission requires such agreements to be made publicly available on its Edgar database.

The group said the ASX should require greater disclosure of whether the removal of the manager or a proposal to close the fund would set off contractually-mandated preemptive asset sales, debt covenants and performance fees.

The exchange, Australia's largest, was home to 23 listed infrastructure funds with an aggregate market capitalisation of A$34.5 billion ($29 billion, €20 billion) as of the end of last month, according to ASX figures.

RiskMetrics said that shareholders in Babcock Brown Communities, an ASX-listed fund managed by Babcock & Brown, are being kept in the dark about a management agreement that is part of the fund's move to internalise its management. The group said shareholders are being forced to rely on the judgment of the fund's directors to determine if a fair price is being paid for the management agreement. A spokesperson for Babcock & Brown declined to comment.

“There is a need for securityholders to be fully informed of all features likely to pose challenges to corporate activity and especially proposals from third parties unrelated to the vehicle manager,” the report said.

The ASX already issued recommendations on 29 August that listed funds should offer a “clear and concise summary” of their management agreements in their initial public offering documents. RiskMetrics said that more disclosure is needed.

RiskMetrics said in April that it had concerns about ASX disclosure involving accounting and management issues in publicly-listed infrastructure funds. The group said it was concerned about “the lack of detailed information about material contracts” and a similar “lack of information about cost of removing [the] manager”. 

The authors of the report were unavailable for comment at press time.