The Board and its Brokers Tuesday 28 April 2009

Transcription

1 The Board and its Brokers Tuesday 28 April Grant Thornton UK LLP. All rights reserved.

2 Agenda Hugh Aldous Consultant for Grant Thornton Iain Scouller Oriel Securities Joe Winkley Oriel Securities 2008 Grant Thornton UK LLP. All rights reserved.

3 Oriel Securities Limited The Board and its Brokers How to get the most from your broker April 2009

4 The Board and Its Broker Oriel Securities Corporate Broking How to make the most of your broker or what does a corporate broker actually do? The Broker and the Manager Key issues for the Board and the Broker in

5 Investment Funds Team A specialist investment funds team focused on corporate broking and advisory services, research, equity distribution and market making Corporate Finance Research Equity Sales Trading Tom Durie Iain Scouller Gavin Woodhouse Carla Leonard Joe Winkley INFORMATION BARRIER Tom Tuite Dalton Robert Tabor Nick Gregory (Infrastructure) Simon Richards Sapna Shah Steven Baird (Property) 5

6 Making the most of your Broker Boards views of brokers one extreme The appendix You know you ve got one Not sure what it s for Only take notice when intensive care looms 6

7 Making the most of your Broker Boards views of brokers the other extreme The crutch You know you re paying for something No harm in checking Take advice on anything and everything 7

8 Making the most of your broker There are some things a Broker should not be expected to do Control the discount Largely a function of performance and market sentiment Sales effort can have minor effects Keep value investors off the register SETS MM allows anonymous trades Use of CFDs now commonplace Buybacks/warehousing can sometimes help but arbs will usually find a way But there are a number of things Brokers can do to add value 8

9 Section 2 How to make the most of your Broker 9

10 Making the most of your Broker What exactly does a Broker do? 10

11 Making the most of your Broker What Exactly does a Broker do? 1 Corporate Advice 2 Sales 3 Market Making 4 Research 11

12 Making the most of your broker 1. Corporate Advice Common misconception You only need corporate support if there s a problem Corporate involvement should be ongoing Updates on market developments Ad hoc regulatory and other advice Only access to advice over the Chinese Wall Attendance at Board meetings Maintain ongoing dialogue May lead to problem being identified before it becomes an issue 12

13 Making the most of your broker 2. Sales How many of you know who your top 10 shareholders are? How many of you know what your top 10 shareholders think about the fund, the manager and the board? Sales team is the company s eyes and ears in the market Crucial for a Board to understand the way their company is seen in the market Crucial for a Sales team to understand and have close links to the investor base 13

14 Making the most of your broker 3. Market Making Liquidity Constantly monitor brokership stocks Try to ensure fair pricing and reduce spreads Capital commitment Use Broker s capital to support funds Warehousing of stock for share buybacks Value investors Monitor trading patterns and spot potential arbitrage activity Liaise closely with Manager Try to stay ahead of arbitrage buyers 14

15 Making the most of your broker 4. Research Why produce Research? Difficult sector to cover Number of funds Diversity of funds Level of newsflow Economics Potential commission 50m Mkt Cap 20% of Fund traded p.a. 10m 10% mkt share 2 x 1m at 0.15% 3,000 potential commission Oriel s approach to Research Daily; Sector Comparative Reviews; Seminars and Fund Eye 15

16 Section 3 The Broker and the Manager 16

17 The Broker and the Manager 17

18 The Broker and the Manager How does the Broker s role fit with the Manager? Fundamentally different focus Manager: investment performance Broker: trading and placing stock However - some overlap in interests Marketing: ensuring fund is in demand Shareholder register: finding the right buyers Important to have a good Broker-Manager relationship Ongoing communication is essential Board should be aware of any issues 18

19 The Broker and the Manager Broker-Manager-Board: Working Together Lines of communication who is the first point of contact? Manager? Need to be able to react quickly Broker? Can cause issues if Manager bypassed Needs to be clearly understood How much decision making has been delegated? Share buybacks? Need to anticipate potential problems Honest view of management Boards obliged to review Manager annually Boards should communicate with Brokers without Manager present Need access to impartial views 19

20 Section 4 Broker and Board issues for

21 Changes in the broking community Major changes in investment company corporate broking over the last few years Withdrawal of large investment banks and increased numbers of boutique brokers Impact on capital commitment to sector Still very competitive numerous houses offering full service corporate broking to investment companies 21

22 Mergers and Reconstructions Lack of liquidity seen to be an increasing problem for the sector Too many small funds Not enough M&A activity Onus on Boards to be proactive in considering M&A possibilities Adding value for Shareholders? Adding value for new investors? Adding value for Managers? 22

23 Market capitalisations of London listed Funds Number of funds > 1bn 501m-1bn 251m- 500m 101m- 250 Market capitalisation ( m) m 31-50m 10-30m < 10m Source: Thomson Financial; March Includes VCTs 23

24 Market capitalisations of London listed Funds > 1bn 1% 501m-1bn 3% < 10m 24% 251m- 500m 4% 101m % m 14% 10-30m 30% 31-50m 12% Source: Thomson Financial; March

25 Alternatives and discount volatility I just checked my alternatives portfolio and it s worth a small fortune. Unfortunately I started with a large fortune. 25

26 Total Sector Discount/Premium 0% -5% -10% -15% -20% -25% -30% Apr-99 Feb-00 Dec-00 Oct-01 Aug-02 Jun-03 Apr-04 Feb-05 Dec-05 Oct-06 Aug-07 Jun-08 Apr-09 Source: Thomson Financial 26

27 Global Growth Discount/Premium 0% -2% -4% -6% -8% -10% -12% -14% -16% -18% -20% Apr-99 Feb-00 Dec-00 Oct-01 Aug-02 Jun-03 Apr-04 Feb-05 Dec-05 Oct-06 Aug-07 Jun-08 Apr-09 Source: Thomson Financial 27

28 Listed Hedge Funds Discount/Premium 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Source: Thomson Financial 28

29 Listed Private Equity Discount/Premium 80% 60% 40% 20% 0% -20% -40% -60% -80% Apr-99 Feb-00 Dec-00 Oct-01 Aug-02 Jun-03 Apr-04 Feb-05 Dec-05 Oct-06 Aug-07 Jun-08 Apr-09 Source: Thomson Financial 29

30 Am I making the most of my Broker? With my brains and your money we have nothing to lose other than your money. 30

31 Issues for consideration How much do you use your Broker? How much communication do you have with them? How much communication does the Manager have with them? How well do you know the market? Shareholder feedback Regular updates on market developments How good is the Broker-Manager relationship? Marketing and shareholder communication strategy What would happen if decisions needed to be taken quickly? Are you happy that the Board is kept up to speed on key developments? 31

32 Making the most of your Broker Finally Pay your Broker Brokership services add value to a well-run Fund Cost is relatively minor AIC best practice 32

33 Contact details Oriel Securities 125 Wood Street London EC2V 7AN Tel: +44 (0) Iain Scouller Joe Winkley Tel: +44 (0) Tel: +44 (0) Mob: +44 (0) Mob: +44 (0)

34 Important Notice Oriel Securities Limited ( Oriel Securities ) has prepared this presentation based on publicly available information. It is not responsible for such information and its bases and assumptions, nor is it responsible for the independent verification of such information and it makes no representation, either express or implied, as to the accuracy or completeness of such information. This presentation is only intended to be made and distributed to professional investors. Importantly, this presentation and any subsequent investment opportunity are not intended to be made or distributed to Retail Clients as defined in the FSA New Conduct of Business Sourcebook (at COBS 3.4). If you are in any doubt as to whether you are a professional investor you must consult an authorised person (for the purposes of the Financial Services and Markets Act 2000) or appropriate legal adviser for guidance. This document is for the exclusive use of the recipient and may not be reproduced, copied in whole or in part or disclosed to any other party, without the express written consent of Oriel Securities. April

35 Hugh Aldous Consultant for Grant Thornton T: +44 (0) E: Iain Scouller Oriel Securities T: +44 (0) E: Joe Winkley Oriel Securities T: +44 (0) E: 2008 Grant Thornton UK LLP. All rights reserved.