(29-11-2011, 09:08 PM)Nick Wrote: [ -> ]I do agree that a review of the fee structure for Trust is required as well. Business trust like Indiabulls have yet to pay a single dividend but continue to earn management fees ! I previously compiled some stats here - http://www.valuebuddies.com/thread-385-p...ml#pid4457 - and judging by today's price, it seems only PST has given positive gains to its IPO unit-holders. Such a poor return shows that something is wrong - while it can be argued that this is due to the high IPO price, the fact that virtually all of them slashed their DPU does show some level of mismanagement. Again, the only Trust which didn't report a lower income available of distribution was PST (though it chose to reduce its payout ratio to 70% for growth). But correlation doesn't imply causation so I won't comment much on this.
With regards to fee structure, I feel it should track the Trust's performance with the key indicators being share price (or market capitalization), DPU and NAV. There shouldn't be any performance fees since they are being paid to perform ! If there are performance fees, can we have under-performance refund ?
I think so far only MIIF uses market capitalization as one of the bench-mark for management fees (but it didn't work out too well either):
MIMAL Management & Performance Fees
FY 2005: $5.919 million (IPO in 2005)
FY 2006: $11.762 million
FY 2007: $19.554 million
FY 2008: $8.861 million
FY 2009: $4.182 million
FY 2010: $4.495 million
9M 2011: $5.829 million
It does seems to track the stock and fund performance well ? Management fees are less than 1/2 of what it was at its peak which makes sense since the share price is around 50 cents now as opposed to its 90 - 100 cents range previously.
Is this fair ? I would say so since fees are based on market capitalization and not total assets (in the case of REITs) or revenue (in the case of shipping trust). The Management fees have been reduced due to under-performance. It is punitive. It rose when the market recognized its good efforts in 2007 - 2008. This is actually a reasonable argument on why changing the current fee structure won't create excellent managers over-night (most aren't in the first place). It clearly didn't drive them to tap on various initiatives to boost the share price (and profits) over the past 5 years.
I have always been curious why MIMAL keeps on engaging in market capitalization destructive practices - investing in self liquidating ventures (HNE), reducing the Fund value (by share buy back) etc - especially when its fees are pegged to it. But that's another story all together. Ultimately, MIIF is a contradiction and till MIMAL sort it out, I don't think the Market will value it the way the Director's wishes it to (I could be wrong here).
(Not Vested in MIIF)
Great work on the
compilation, Nick!!
I totally missed it!
Incentive
I agree on having a blend of all 3, Mkt Cap, DPU & NAV; with higher weightage to DPU (standalone factor) and maybe NAV/ Mkt Cap (a combi type ratio) as metrics to align with shareholder interests.
The evidence shows that many in the MacQ Group including MIIF as co-investors bought assets such as Arqiva, CAC , MCG, MEIF etc and later found that during the GFC, financing the debt with roll-overs became difficult and unsustainable.
Then they sell at distressed prices eg Arqiva & MEIF resulting in huge trading losses.
These buys were incentivised by the need for high market cap, the higher the NAVs, the higher the valuations----- hence the higher the market cap. The siblings in the MacQ Group also earned huge "specialist" fees from many of these acquisitions----which is part of the biz model MacQ Group pioneered for Infrastructure.
So altho, it is NOT immediately obvious to you, if you think about the MacQ web of interlinked co-investments, much of these were incentivised by the need for high market cap factor .
In other words, if you are a manager who rose thru the ranks in the MacQ Group, you will be pressured by your peers to boost your funds market cap thru co-investments.
Drop in Fees
I would argue that the drop in fees is the result of an inevitable drop in market cap due to the sale of assets which MIIF co-invested but was sold at the behest of others higher in the pecking orders in the MacQ Group.
The shareholder value destruction, 37.5% NAV between 2007 and 2011 which was destroyed due to inept management (see post 71), thru trading losses, was NOT penalised. Neither was the huge discount to NAV caused by unhappiness with the Arqiva sale/trading loss, penalised. So I would argue the fee structure was/is NOT punitive.
Diminishing Value
I also agree that the HNE structure, which you call self-liquidating is odd. Acquired at 19yrs (now 15 yrs) remaining toll rights with a mix of equity/loan.
Altho, management classify it as a trading asset (hence much info not shown in consolidated accts altho 81% owned), that value is a diminishing value---- if they really plan to sell/trade at valuations now, they would have lost S$41.6m.
In the 1st place, I wonder, if they over-valued and who did the valuations (hopefully no IPT for specialist fees!)
2ndly, and more importantly; with maturity of the loan in 2022 i.e. 11 yrs from now and toll rights expiring 15 yrs from now, and the NAV diminishing -----how do they expect to refinance i.e. get loans for the last 4 yrs of the toll rights?
IMHO, that is tantamount to cutting short, the life of the toll rights by 4 yrs OR they would really have to trade and sell the HNE asset soon !!
KGT
Since KGT was one of the trusts in your compilation. I will like to comment on it. If U look carefully at the Board's composition, U will find that some of the IDs have IPTs with the listed trust and their independence is a "qualified" independence.
For me, I divested KGT, as a result.
My thinking then was the same as lonewolf (whose opinion, I have great respect)---- what you don't like sell !!
When I saw the same Corporate Governance thing happening at KReitAsia, I had a re-think and I realised that merely selling was NOT enuff . To be frank, I was one of those who called for a poll at the KReitAsia EGM.
MAS must review
So I want to reiterate again, there are serious issues such as IDs independence, incentives structures and transparency of accounting and due processess at AGM/EGM that MAS must review and provide answers.
I think, I better stop or I may go on and on...