WILLIAM Claxton-Smith, the well-known corporate governance expert, has been brought in to help lead an inquiry into the fees charged by investment banks for rights issues.
Claxton-Smith, who has previously held senior roles at Insight Investment and Scottish Widows Investment Partnership, will work on the investigation launched by the Institutional Shareholders’ Committee (ISC) this week. The probe is likely to take in some of the more expensive capital raisings held recently. Prudential’s ongoing $21bn (£14bn) cash call and Lloyds Banking Group’s £13.5bn balance sheet fix last year will come under scrutiny.
The ISC, whose members include powerful investment houses such as Henderson and Schroders, is concerned the price of advisory work on rights issues has crept up from 1.5 per cent on average before the financial crisis to 3.5 per cent.
Doug Ferrans, who is spearheading the inquiry, told City A.M.: “These are somebody else’s words, but there has been a suggestion that a cartel has been operating. Some fund managers feel they are being ripped off.”
Ferrans said his team go into the process with open minds but would “lift the drain lids and dig deep to see what’s going on. I genuinely don’t know how this will go, but this may well give shareholders the ammunition to do something if there’s something that needs to be done.”
Among other things, the investigation will look at the practice of sub-contracting the underwriting of rights issues. Ferrans said investment banks often kept a generous share of the fees despite passing risk on to institutional investors. It will also look on a more general level at whether the typical pension fund customer is getting value for his or her money from corporate advisers.
The Office of Fair Trading will work with the ISC, which is expected to report back by the end of the year.
FORMER DIRECTOR, SCOTTISH WIDOWS
WITH more than 30 years’ experience as a fund manager and corporate governance director, William Claxton-Smith is a heavyweight addition to the panel on bank fees.
Claxton-Smith joined Insight Investment – then known under the Clerical Medical brand – in 1976 after a degree in Philosophy, Politics and Economics at Exeter College, Oxford.
He built up a track record as one of the UK’s most consistent large cap managers, heading Insight’s Equity High-Income Fund for 19 years until January 2004, when he switched from hands-on investing to corporate governance work.
Sitting on the board of Insight, he forged close links with Douglas Ferrans, who was then chief executive.
The two men pushed Insight to increase its engagement with portfolio companies, encouraging its fund managers to intervene on issues like pay and takeovers.
Some of Insight’s assets were transferred to Scottish Widows Investment Partnership, Lloyd’s investment arm, last year. Claxton-Smith moved to Swip to help oversee the transition and stayed on as director until last month.
The inquiry into rights issue fees with the Institutional Shareholders’ Committee is Claxton-Smith’s first industry role since then.