Investment Association boss Daniel Godfrey’s exit raises questions for funds

 
Mark Kleinman
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That scenario resembles the way AB InBev’s courtship of SABMiller is unfolding (Source: Getty)
Hold On To Your Friends, Lost, I Don’t Mind If You Forget Me: all hits of Morrissey, The Smiths vocalist. They are also song titles which might resonate with Helena – a better-known Morrissey in the City – whose roles include the chairmanship of The Investment Association.
Some members of the fund managers’ trade body are up in arms about what they view as its over-zealous approach to embracing impending regulatory reforms.
Where most industry associations are accused of standing truculently against radical regulators, the likes of M&G and Schroders complain that Daniel Godfrey, the now-former IA chief executive, proudly adopted the opposite stance.
Godfrey was certainly a driver of the IA’s efforts to improve the transparency of members’ disclosure in areas such as fees and remuneration.
Rumours of heated email traffic between board members and the former chief executive were the subject of frequent gossip among fund managers. “He was front-running everything, pursuing his own agenda,” one critic said.
It’s also arguable that a statement of principles published recently by the IA contained a degree of naivety: a commitment always to act in clients’ best interests made some members’ investors shift uncomfortably in their seats.
Godfrey can justifiably claim, though, that trade associations across the City have been too back­ward-looking since the financial crisis. Ousting him and replacing him with a more aligned ambassador for the industry looks like an outright victory for his opponents, but it’s questionable whether it will be a Pyrrhic one over the kind of long-term period beloved by fund managers.

MORRISSEY’S EU DILEMMA

As for Morrissey herself, Godfrey’s exit raises a number of awkward questions. She had been a staunch defender of the IA’s chief executive, although insiders say she was appropriately resolute in delivering the message that he had no longer had the board’s confidence.
It is on the subject of Europe where things might become difficult for the Newton Investment Management chief.
Only this week, she was arguing volubly in favour of a British exit from the European Union, suggesting that David Cameron was unlikely to secure sufficiently robust reforms to justify retaining its membership.
That hardly makes her an outlier in the wider debate, but it has caused consternation among those who believe the IA will need to turn up the volume in favour of a decision to stay in Europe.
Morrissey’s views on Brexit have never been a secret. Nevertheless, it will be tricky for her to maintain her personal public stance while remaining a valuable ambassador for the industry as the referendum draws closer.

BAR-ROOM BRAWL ERUPTS

It’s a familiar story in every high street bar: two people meet and get along famously until one of them says something untoward, and then all hell breaks loose.
That scenario resembles the way Anheuser-Busch InBev’s courtship of SABMiller is unfolding.
After a week of silence, the Budweiser brewer’s lodging of a £42.15p-a-share cash bid might have been expected to prise open the door of the Anglo-South African brewer.
After all, SABMiller shares were trading below £30 just weeks ago, and the company’s biggest shareholder – Marlboro-maker Altria – wants talks to take place.
Instead, this is a deal the City has called wrong from the start. The recruitment of Goldman Sachs to join the defence roster should have provided more of a clue that Jan du Plessis, SABMiller’s formidable chairman, was pursuing an independence strategy.

SO WHAT NEXT?

There is clearly too much at stake for AB InBev to walk away without raising its offer again, but investors will be getting carried away if they think that “substantially undervalued” means the US company will go well north of £45.
The attempt by SABMiller’s advisers to reduce the headline price by blending the all-cash and the cash-and-share alternative is logical, but more than a bit disingenuous.
Du Plessis’ robust defence might result in AB InBev walking away.
If it does, it would be surprising if (just as with Pfizer’s approach for AstraZeneca) SABMiller shareholders did not demand future management incentives be tied to the value its board is pointing to during this increasingly frenetic bar-room brawl.

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