Our hopes have been dashed

Are most of our large fund managers captured?

SA is being let down by the fund managers who are supposedly looking after our financial interests. These days all but the super-rich must use professional fund managers to take care of their often-mediocre savings or pension entitlements.

It is possible for the very determined to actively manage a small portfolio but it requires considerable know-how and lots of determination.

Like it or not, we’re forced to rely on the judgment of professional fund managers. We hope they will do whatever they can to protect and grow the value of our investment. We hope they will act ethically and in society’s best interests. While we are the ultimate “beneficial” shareholders, they are the nominees and are in the driver’s seat.

It now seems all that hope is misplaced. We have Pwc’s latest executive remuneration survey to thank for pointing this out (see page 9). PWC established that our biggest fund managers were overwhelmingly backing the remuneration policies of our biggest companies.

Coronation, Investec and Stanlib were 85%-95% likely to approve a company’s remuneration policy. This is the level of support usually enjoyed by corrupt dictators. It smacks of a system that does not work.

Allan Gray was the only fund manager that appeared to apply its mind to the issue; it supported just 58% of remuneration policies.

There are lots of reasons why we should be shocked by these voting records, not least of which is the possibility that this may be how these institutions vote on all AGM resolutions. If so, it means corporate governance, which relies on active engagement by the nominee shareholders, has made little or no progress. All the good intentions of successive King codes have been boiled down to box-ticking exercises.

The seeming unwillingness to engage on executive pay is concerning. Time and again we are told the excessive pay awarded to the executives of listed companies is justified because they are “market-related” and are approved by that most critical of constituencies, the shareholder.

Neither of these justifications ever stood up to much scrutiny. The socalled market is rigged by an army of remuneration consultants, recruitment agents and remuneration committee members. They combine to create that “market” and enable its players to hide behind the term “market-related”.

As for the likelihood that powerful fund managers might exercise useful oversight over the process, that they might impose some discipline; this seemed more wishful than realistic.

But there was always the hope these people would act in the best interests of their clients; that they would look beyond the short-term gains from cosying up to executives; that they would look beyond the discomforting realisation that their own executives were benefiting from unjustifiably large pay packages.

Now we know: all that desperate hope was misplaced. With the commendable exception of Allan Gray, it seems our large fund managers are as captured as some of our politicians.

Allan Gray was the only fund manager that appeared to apply its mind to the issue