Babcock & Brown to alter governance, fees for satellite funds

Marking the latest step in its ongoing strategic review process, the Australian fund manager will add more independent directors to the boards of its satellite funds and alter the structure of its fee income as manager, starting with Babcock & Brown Infrastructure and Babcock & Brown Power.

In a move to assuage concerns over poor corporate governance, Babcock & Brown will take steps to augment the independence of the boards of directors of its satellite funds and to alter the base and incentive fees it receives from them, starting with Babcock & Brown Infrastructure and Babcock & Brown Power.

Among other steps, Babcock & Brown Infrastructure, the first fund to disclose the details of how it will enact the proposed changes, said that two independent directors will be added to its company board, which currently consists of two independent and two non-independent directors.

Babcock & Brown also will split the base fee it receives from the fund into a CPI-adjusted flat fee component of $1 million per year and a tiered management fee that gives it .1 percent for market capitalisation of A$400 million, 1 percent for market capitalisation greater than A$400 million and less than A$2 billion, and .75 percent exceeding A$2 billion.

Additionally, Babcock & Brown will forego receiving incentive fees from the fund until its share price stabilises at $1 per share or three years have passed from the enactment of the change.

The Australian specialist fund manager said in a statement that similar changes, meant to minimize perceived conflicts of interests and align incentives for the funds and the manager, will be discussed with the independent directors of its other satellite funds, who may ultimately approve measures similar to those adopted by Babcock & Brown Infrastructure.

Some ASX market observers have long expressed criticism about the way listed fund managers such as Babcock & Brown and its bigger rival Macquarie Group handle their corporate governance. Last month, corporate governance advisory group RiskMetrics published a report criticising listed asset vehicles for not disclosing their full fund management agreements, which RiskMetrics said puts investors in the dark about how difficult it would be to unseat the managers in a takeover action. 

For Babcock & Brown, the changes mark the latest chapter of its ongoing strategic review process, announced in August, meant to turn around the firm’s performance after the value of its shares plummeted nearly 90 percent in the first eight months of the year.

The strategic review has already resulted in a decision to wind down its corporate and structured finance division, sell its management agreement and ownership stake in satellite fund Babcock & Brown Communities and key personnel changes, including the resignation of the firm’s former chief executive officer, Phil Green.