Macquarie Group has disclosed the management agreements for three of its listed satellite infrastructure funds and enabled their shareholders to nominate and vote on the appointment of all their directors.
The changes affect Macquarie Infrastructure Group, Macquarie Communications Infrastructure Group and Macquarie Airports, all of which are listed on the Australian Stock Exchange.
The announcement came less than a week after another Australian fund manager, Challenger Financial Services Group, announced that it would disclose the management agreements to certain of its listed funds.
Listed fund managers such as Macquarie and Challenger had come under fire recently by Sydney based corporate governance adviser RiskMetrics, which published a report in September criticising their corporate governance practices.
“It’s a positive move,” said Dean Paatsch, the lead author of the RiskMetrics report. “The continuation of the external management model is not necessarily dangerous to security holders. The elephant in the room is: what is the possibility of internalising management?”
RiskMetrics recommended that their management agreements be made public so that investors in listed funds would know if the removal of the manager or a proposal to close the fund would set off contractually mandated preemptive asset sales, debt covenants, performance fees or other terms and conditions that block or impediment takeover actions.
“It’s in direct response to the critique that we’ve been making that 100 percent of management is outsourced, so it [the management agreement] is as important a document as a company constitution and investors need that full line of sight. Finally, after a long time, Macquarie has agreed,” he said.
Paatsch noted Babcock & Brown is the only family of funds on the ASX that has yet to disclose is its fund management agreements. RiskMetrics will publish a follow-up report later this year detailing the impact to investors of the fully-disclosed management agreements.
Additional changes at the three funds included giving their shareholders the right to nominate and vote on the appointment of all directors across their boards on a rotational basis. Previously, Macquarie nominated and appointed most of the directors on the boards.
Macquarie said that it will abstain from voting its interests in the funds for director appointments and that its employees will not be eligible for nomination to the boards. Each board will comprise seven directors.
The changes will be effective as of the funds’ 2009 annual general meetings. In the meanwhile, certain key Macquarie executives, including Michael Carapiet, head of Macquarie Capital, formerly Macquarie Group’s investment banking division, have resigned their board positions with the funds.
Macquarie Infrastructure Group, Macquarie Communications Infrastructure Group and Macquarie Airports have all seen their share values plummet this year below their net asset values. Year to date, their shares are down 34 percent, 70 percent and 41 percent, respectively.
In response to this, both Macquarie Infrastructure Group and Macquarie Airports have made plans for share buybacks.