Shareholders Assn queries Marlin manager decision, backs wind-up

Shareholders Association chairman John Hawkins

BUSINESSDESK: The New Zealand Shareholders Association, which advocates for retail investors, is questioning Marlin Global's decision to roll over a management contract with Fisher Funds and will back a resolution to wind up the investment company at tomorrow's annual meeting.

Chairman John Hawkins says the NZSA's legal advice indicates nothing in the management contract stopped Marlin's board from getting an outside appraisal of Fisher Funds' performance when it came up for renewal and that option should have been reviewed.

A review "would have been sensible after a five-year period, whether or not the Elevation proposal had arisen," Mr Hawkins says. "This would have also clarified the conflicting claims from the company, the manager and Elevation which are very difficult for shareholders to compare and sort out."

The NZSA will back a resolution by Marlin shareholder Elevation Capital Management, a rival fund manager to Fisher Funds, to liquidate the Marlin portfolio and return capital to investors as a means to press the issue and force an independent review of Marlin's future.

Elevation claims Marlin shareholders have been poorly served by the company, which has consistently traded at a discount to its net asset value and underperformed passive funds. Winding up the company offers investors upside of some 15% with a return of some 81 cents, it says.

Marlin independent directors Alistair Ryan and Carol Campbell scotched the proposal, saying Elevation is a rival fund manager and had only been a shareholder for a matter of weeks.

Fisher Funds' Carmel Fisher said Elevation's hostile approach was aimed at making a one-off gain and investors should be looking for a long-term investment focus.

Mr Hawkins says the real issue for Marlin shareholders is the company's structure, which has potential for conflicts of interest with a representative of the manager sitting on the investment company's board.

"The recent sudden departure of two experienced and respected independent directors, along with the appointment of a new portfolio manager, had also concerned some shareholders.

"The remaining independent directors sit on two other investment companies run by the same manager and this has inevitably led to questions about their independence," he says.

The NZSA will seek a change to listing rules so directors holding multiple board seats operated by the same external manager will not be considered independent.

In 2009, Marlin shareholders turned down a bid from investor Gary Cross to change the investment company into an open-ended managed fund after the gap between its share price and net asset value widened.

He and his supporters forced Marlin to order an independent report to look at delisting and restructuring, and said ways the investment vehicle could improve its NAV were through share buy-back schemes, implementing a managed dividend policy or winding up.

The shares fell 1.4% to 70 cents in trading today, a 15% discount to the net asset value of 82.35 cents as at October 23 after deducting treasury stock from the buy-back programme.

Marlin's five biggest assets are Germany's Biotest, Stratec Biomedical, Wirecard, Israel's Sarin Technologies and US based Orthofix.

The company wrote down 80% of its stake in recycling paper company Fook Woo after the Hong Kong-listed firm was suspended from trading amid allegations of fraud. Fook Woo accounts for about 1% of the Marlin portfolio.

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7 Comments & Questions

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Nepotism is ripe in New Zealand businesses; especially relating to public funds.

Independent reviews should always be an option for the masses, rather than being dictates by those with vested interests.

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Surely it would be mad to wind up a company that, since inception, has performed 1st out of 29 comparable NZ managers and 1st out of 24 comparable international managers (including lots of big NZ/international names). Marlin was the ONLY ONE to give a positive return (plus 14%). ALL the others were negative (NZ managers averaged NEGATIVE 19%; international managers averaged NEGATIVE 24%). The figures are contained in Marlin's 17 October 2012 letter to shareholders - on the Marlin website.

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Marlin trades at a material discount to net asset backing and performance has been disappointing since inception. It would be mad to roll over the management contract without looking at alternatives. Incompetent independent directors at work here.

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As a listed fund, NAV is irrelevant - it's the share price which matters. The share price is 70 cents - down 30% from listing.

Where is the positive return??????????

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Yet another example of the poor corporate governance in NZX companies. A return to the bad ole days of the 1980s. Independent means independent not in the pockets of conflicted parties.
Trouble is there is little understanding or acceptance of good governance principles in NZ.

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Having attended the Marlin AGM today and having heard the presentation from Elevation Capital and the explanation from the board about the renewal of the Fisher Funds Management contract, I am of the opinion that John Hawkins and the Shareholders Association have done their members a gross disservice.

The renewal of a five year contract based on five years performance seems entirely appropriate and  when that five year performance is reported by Morningstar to be top amongst their peers, why should the independent directors require an additional independent review? If an independent board is not capable of of decision making at this level, why have one?

For the Shareholders Association to announce that they would vote for the Elevation proposal (which turned out to be a blatant attempt at self promotion) just to "press an issue", is ludicrous.
Voting to wind up a company is not a decision to be taken lightly. Surely the Shareholders Association has the ability to engage companies and their boards directly to get to the bottom of any issues that they may have.

The Shareholders Association was silent until the Elevation proposal was released, which suggests neither they, nor any of their members had an issue with Marlin. 
To blindly support the views of a self appointed activist and in this instance, a competing fund manager is totally irresponsible.

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