THE Australian Securities Exchange has been urged by a leading corporate governance advisory firm to mandate the listed satellites of companies such as Macquarie, Babcock & Brown and Challenger to disclose the "full text" of their management agreements with their parents.
Despite the ASX recommending in a guidance note on August 29 that funds should offer a "clear and concise summary" of their management agreements in their initial public offering (IPO) documents, RiskMetrics says a tougher line should be taken.
RiskMetrics said the ASX should "require all listed vehicles with external management agreements to disclose the full text of these agreements to the market, as is the case in other jurisdictions such as the US and with other documents fundamental to securityholder rights such as constitutions".
As with the attempt by British billionaire Vincent Tchenguiz to force a wind-up of Challenger Infrastructure Fund (CIF) and with the takeover bid for Babcock & Brown Communities, RiskMetrics said: "Many of the impediments to third party proposals for listed asset vehicles only became apparent after corporate activity began. This indicates a systemic disclosure failure."
The report also said insufficient information was provided on the pre-emptive rights over the ownership of assets in a fund, debt covenants at an "asset level" and the fees that may be payable if an agreement is terminated.
It noted the "significant performance fee obligation" CIF said it would have to pay to its manager, Challenger, when it argued against the wind-up proposal.
"There are now many entities listed on the ASX with external managers and various arrangements that serve to entrench the manager," RiskMetrics said.
RiskMetrics gained notoriety in April for being one of the first research firms to comprehensively discredit the so-called "Macquarie model" of fee-driven listed infrastructure funds.
The executive director of the Australian Council of Super Investors, Phillip Spathis, backed calls for the ASX to go beyond obliging listed funds to provide summaries of their management agreements in their IPO documents.
"The nature and complexity of such arrangements becomes more amplified in an environment where we aren't so mesmerised by returns," Mr Spathis said. "We can't continue to be mesmerised by returns alone."
Mr Spathis said better disclosure on management agreements would even help funds attract capital in the current environment by making investors more relaxed on how the funds are managed.
The ASX, however, argued it should be "up to the law" for stricter standards to be set, if they are required.
Following the release of the ASX "guidance note" last month, the exchange said that it had started monitoring the disclosure of management agreements.
"Where companies have not provided information in relation to these keys areas, we will be seeking an explanation," an ASX spokesman, Matthew Gibbs, said.
