In this 2-part series, City A.M. zooms in on the relationship between investment boards, asset managers and shareholders.
In the first instalment, a number of Square Mile-based investment managers discussed why and when investors come to realise the asset managers needs to be replaced, and how such decisions come about.
Today, the City insiders debate how drastic changes can be best presented and communicated to and with shareholders.
One company that may be struggling with this in the immediate is insurance giant Aviva. Earlier this week, it was reported that the City-based firm is set to sack its top fund managers in a radical cost-cutting plan.
The company is planning to fire 10 equity managers from its asset management arm Aviva Investors. The move may cast doubt over Aviva’s future status in the global asset management market as it will be left with only 20 to 25 fund managers following the departures.
Since this is a fairly drastic move with the potential to impact the growth and long-term outlook of the business, the big challenge for Aviva – and for any company in a similar position – may be what language should investment managers speak to the owners of the business when pushing for sweeping proposals like these.
City A.M. asked a number of seasoned City insiders how such drastic changes should be managed and communicated.
For a start, communication with shareholders before any announcement is made is “very difficult” since UK wealth managers are reluctant to be made insiders and communication on sensitive information to shareholders is tough, stressed fund manager Arthur Copple, chair of Temple Bar Investment Trust.
However, when we changed asset manager, “we were able to listen to their views, particularly on style bias. Post the announcement of the management change, the board and managers went to great lengths to speak with all shareholders personally.”
Copple added that a virtual roadshow with both me and the managers ensured that shareholders were informed about the investment approach and style of the trust, as well as giving an opportunity for shareholders to question and scrutinise the managers.
“In order to reach individual investors, we also recorded and hosted a Q&A and videos from the manager and me on our website,” he gave as a practical example.
This makes sense to Glen Suarez, who chairs the Edinburgh Investment Trust.
“Keeping shareholders informed of processes the board go through is critical, as the board’s primary objective is to look after their interests,” he said.
When the Baillie Gifford China Growth Trust decided to part ways with its asset manager, it communicated with the assistance of our broker, according to the fund’s chair, Susan Platts-Martin.
Moreover, she and her team also made calls to larger shareholders and via stock exchange announcements and written circulars that were sent to registered addresses.
“Shareholders of course had the chance to vote on the proposals,” she added.
Advantages to shareholders
Ultimately, the board’s principal concern has been, and continues to be, the interests of the company’s shareholders, Suarez said.
He zoomed in on his own investment fund, saying that the appointment of Majedie was “a critical step” in ensuring that the company’s objectives of capital appreciation and dividend growth will be met over the long term.
“Since the change the performance of the company has been much improved and we have every expectation that will continue,” Suarez noted.
Copple revealed that,since RWC took over management of his Temple Bar investment vehicle in October of last year, the NAV performance has been “terrific.”
Copple stressed that the sustainable value style of the new management team will bring long-term outperformance.
“Since RWC assumed management, there has been a reinforced commitment to marketing the trust which has contributed to the re-rating,” he continued.
Playing a key role
When asked what the managers find the most enjoyable part of chairing an investment vehicle, Platts-Martin said that she enjoys being able to set the agenda for board discussions.
Copple added that, at times, the process of changing its asset management “was painful and time consuming for the board to say the least.”
Therefore, any investors considering a management change should prepare for “a long slog,” he stressed.
Having said that, at the end, after a thorough process and careful deliberation, they will realise it is worth it for shareholders, he added.
“Don’t necessarily take the easy route. Boards should remember that shareholders are key, and they should always keep good lines of communication with them. Listen to what your shareholders want,” Copple concluded.
The first instalment, which zooms in on when and why investors know it’s time to ditch their asset or fund manager, can be found here.