COMMENT by ALEX BRUMMER: Raider chooses wrong target

By ALEX BRUMMER, CITY EDITOR
Updated: 17:39 EST, 6 January 2011

The pursuit of F&C Asset management by activist investor Sherborne does not look to be in anybody's interest. Fund management firms, as the custodians of the savings of millions of ordinary people, have a special responsibility.

Ownership, control and fiduciary duty are far too important for control of such companies to be passed around like second-hand goods at a car boot sale.

No one has any quarrel with the work of activist investors. In many cases they do a fine job in holding the feet of lazy management to the fire.

Special responsibility: There is nothing in Edward Bramson's record to suggest that he is qualified to take on the role of managing £100billion of funds, says Alex Brummer

Certainly, in the past (under the captive ownership of Friends Provident) F&C may have lacked energy. But its current chief executive Alain Grisay has sought to correct this through the purchase of the special investment skills of Thames River Capital.

Edward Bramson, of Sherborne, has managed to force an extraordinary general meeting on February 3 with the aim of ousting current chairman Nick MacAndrew and installing himself in his place. Yet there is nothing in Bramson's record to suggest that he is qualified to take on the role of managing £100billion of funds.

The dangers of treating people's savings cavalierly have been well illustrated by the events at Pearl.

Pizza-king Hugh Osmond was allowed, by the regulators, to buy into the then 'zombie' life funds held by 'old' Resolution with a mountain of debt.

When the financial crisis came along Pearl and its policyholders ended up in a debt-laden vehicle based in the Netherlands before being rescued by company doctor Ron Sandler, who has renamed the enterprise Phoenix. In this ghastly mess the interest of policyholders was horribly neglected.

The fund management industry did not cover itself in glory during the financial crisis. New Star ran into difficulty and Gartmore had regulatory problems and lost key managers. But both institutions found a safe haven at another manager, Henderson, and pension funds and savers were protected.

What is particularly curious about the Sherborne raid on F&C is that it is backed by insurer Aviva.

It is the biggest shareholder in Sherborne with a 19.52 per cent stake. But it is also the third largest shareholder in F&C and is backing the Sherborne coup which seeks to impose three new directors on the F&C board.

Aviva should know better. If it is dissatisfied with F&C's board structure it should have dealt with the matter through the usual investor relations channel. Getting into bed with activist investors is destabilising and potentially unethical. The insurer's behaviour towards one of Britain's oldest and respected investment managers is unacceptable. Chairman Lord Sharman and chief executive Andrew Moss must call off the wolves.

Cleaner accounts

Annual reports have long been a valuable information source for investors. But too often they are used by companies as marketing documents and the information presented is so opaque that they are of no use to man or beast.

This was particularly true during the credit crunch when the figures provided by the banks were all but meaningless.

So it is terrific that the Financial Reporting Council ( FRC) is seeking basic reforms noting they have become too cluttered with useless information. It wants more balanced reports, in which risks are properly discussed, and an expanded audit report which points out inconsistencies.

It might also consider the makeup of remuneration panels and demand better disclosure of the 'backscratching' deals under which chief executive in company 'A', acting as a non-executive director, signs off on a fat cat package for company 'B' in the hope of the same favourable treatment.

One of the FRC's ideas is that firms take advantage of technology to ensure the accessibility of reports. On the contrary, the best thing which could be done, is a return to the status quo ante under which every investor (and the media) received a full printed copy of the report hot off the presses. Hiding them away on websites makes them more difficult to read and interpret.

Excuses, excuses

My normal reaction when BA reveals that some event beyond its control has disrupted operations and cost it £50million is to express sympathy for Willie Walsh and blame the unions, the airports authority BAA or someone else for its woes.

But having observed personally the impact of BA's incompetence on a young friend, trying to get back to Washington during the December snows, its excuses this time must be disregarded.

BA's phone lines were permanently engaged and the website all but immobilised. Meanwhile, luggage which had been loaded went missing for at least a week and may not yet have caught up. Shameful.