Apples and oranges

Comparing apples with oranges is a capital sin in the financial world. If you want a story about a company, check out the profits, if you want the truth look at cash inflows, either way compare likes for likes.
    But these days it seems that another way to see if a company is likely survive is comparing likes for dislikes.
   I have heard a corporate governance expert say that a board of directors’ attitude towards shareholders at an AGM speaks volumes.
    Any dismissive act, any waiving off of a concern automatically qualifies the director for a one way trip to the realm of the past.
    The managers of the future do not dislike a probing shareholder, they keep an eye on them and engage, Mr Governance Guru said, blissfully unaware that a journalist was in hearing shot.
    Whether one can judge an executive from body language or not, is hard to say. It is equally hard to say what board directors are calling a priority these days, but it is fair to assume that they are all keeping an eye on pension schemes showing up at AGMs to vote. And question.
    Last week ABP, the 217 bln eur Dutch civil service pension scheme, pulled its weight to back a request for a new and independent committee at Apple Inc to look at sustainability issues in the long term.
    The scheme went against the recommendation of the board of Apple directors (which includes Al Gore), which recommended a negative vote. The board got its way and the resolution was voted down.
    Three weeks or so ago in Switzerland a similar scene took place, this time at the UBS EGM, where the Ethos foundation, also backed by pension schemes, failed to carry its own resolution calling for extra details on how UBS was hit by the sub-prime crisis the way it was.
    Again the company got its way, but Ethos says its resolution gathered 44 pct of the votes and has now enough to command a meeting with UBS to negotiate. If that does not happen, Ethos says it is ready to refer the matter to arbitration.
    Apple and UBS are two different companies in different countries.
I am mixing apples and oranges? Maybe, but to remain in a horticultural context, it is also about seeds that have been sown. A new species of institutional investors is blossoming.
    More on: http://www.thomsonimnews.com/story.asp?sectioncode=&storycode=36973) http://www.thomsonimnews.com/story.asp?sectioncode=7&storycode=36327

The Italian job

For the fund management company looking for interesting mandates, Espero’s requests for tender may seem a poor catch; with a capital value of around 78 mln eur this is a small scheme even by Italian standards. But – as ever- the devil is in the detail.
    Espero has the backing of the state, which is both the employer of the public school staff and the promoter of the pension reform, designed to teach Italians in general to save for their pensions.
    The Italian ageing population is coming to terms with the un-sustainability of the generous state pension and is looking around for options to invest for the first time their pension pot. School staff is no exception.
    Mindful of the fact their particular category makes up a large part of the public employee expenses, not least pension expenses, the state has every interest in making a success of Espero, which means getting teachers , care-takers and administrators to join it.
    Given that school staff has already been offered financial incentives to join the fund, it is likely that the potential 1.2 mln membership will slowly but surely be achieved, eventually making Espero one of the most significant pension schemes in the country.
    It may not see a great deal today, but entrepreneurial fund managers could do worse than dropping their business cards at Espero’s office in Rome. Only be prepared: Espero will consider applications just in Italian.

INTERVIEW Schroders to boost its alternatives’ investments

Fund manager Schroders is looking to boost its allocation to alternatives through additional investments in private equity, commodities and real estate, according to group CIO Alan Brown.
The fund manager is also pushing through plans to expand into the US markets, Brown said.

Speaking to Thomson Investment Management News on the sidelines of the Liability Driven Investments conference, Brown said that although the private quity industry is facing hard times, it is still worth building up expertise in the area.
“Schroders has a long history of private equity (investments) and I would like to expand that again. At this stage we are keeping all options open.

“From the timing point of view, I agree that private equity is not something you would rush into today but private equity is a 10-year business; you have to be be sensible from the entry point of view but in terms of building capabilities in that space, this could be a rather good time to do it,” the CIO said.

“It is perfectly possible that by the end of this year it is a great time time to get into private equity,” he said.

Brown said the group is “very interested” in alternative classes and the internationalisation of its real estate activities, which started as a UK business, is firmly on the cards.

“We made a small acquisition last year which has made us European and from the securities side we have already been promoting global property securities funds, but over time we see property asset class will be globalised in the same way as equities were 30 years ago,” Brown said.
 

Schroders, he said, is also poised to be active in the commodities area, although it will be careful not to overdo its investment in the OTC market.
Brown said the agricultural commodities sector is particularly alluring at this point in time.

“We think it benefits from a very positive supply/ demand position. We have the whole issue of bio-fuels, both driven by desire to reduce greenhouse emissions and from the US side reduce dependency from imported energy,” Brown said.

A further key driver is increased prosperity in Asia which is driving demand for commodities such as wheat.

“Another reason is the short-term impact of the climate change in term of impacting yields (harvests), it could boost yields in places like Scandinavia with warmer summers but more generally in the bread baskets of the world, there is potential for problems in terms of yields,” the executive added.

From the hedge funds point of view Brown said Schroders will continue focusing on the fund of funds arena while increasing its distribution effort for its hedge fund operations, the NewFinance Capital.

Brown said that while Schroders was a global player, it is still “underrepresented in terms of clients and assets in North America”, and is expanding its efforts, concentrating on both the institutional market opening to non-US investments while continuing its efforts to gain ground in the intermediary market.

“Interest in non-US investments, particularly after a prolonged period of dollar weakness is quite high,” Brown said, adding that international equities, emerging markets equities and commodities are the most popular non-US investment options.

“The other area where we see demand, but is new to us is is the intermediary space. If you go back a few years ago; we had never attempted to enter the intermediary business in the USA but we believe the conditions are right,” he said.

He backed his argument saying that domestic investors, like institutions, are interested in international investments and on top of this intermediary firms are moving more towards an open architecture structure and are more willing to distribute third party products.

“We already have strong relationships with intermediaries in other parts of the world, so it was quite natural for us to try and expand our relationship into the United States,” he said.

“We are not going head to head with the Smith & Barneys of this world but we hope that they see the value of our funds and hope they include it in their offerings. We started this (expansion) in 2006 and it is going quite well,” he said.

Brown reiterated Schroders‘ interest in bolt on acquisitions, giving North America as an example, but was cagey on the asset classes aspirations for the group. He only said new acquisitions would broaden the group’s capabilities “beyond the equity frontier.”

“We have said we are interested in acquisition of a bolt-on type, but to expand our capabilities and further our ambitions,” he said, adding that Schroders is still still 65-70 pct equity oriented.