Australian listed investment companies (LIC), funds and trusts should be prepared for aggressive takeover bids from hedge funds, a corporate advisory specialist said yesterday.
Many LICs and listed trusts had share prices more than 50 per cent lower than the net asset value of their own investments, Pottinger special adviser Nicholas Gold said.
This made them attractive targets for hedge funds, which were prepared to force restructuring or gain control and sell off their investments, Gold said.
"International hedge funds, including Laxey, Carrousel and Weiss, as well as domestic active investors such as Dixon Advisory and the infamous Nick Bolton, have attacked a range of Australian LICs and trusts in recent years," he told an audience in Sydney.
"Australian LICs should be prepared for further aggressive action by these predators, as their activity in Australia is still relatively low compared to Europe and North America."
Pottinger joint chief executive Nigel Lake said LICs should recognise the threat and their own vulnerability, watch out for conflicts of interest, engage actively with their shareholders and take proactive action if they wanted to prepare for unwanted hedge fund attacks and reduce vulnerability.
"It's something that happens all around the world; it's been happening for quite a large amount of time. It arrived in Australia pre-GFC (global financial crisis) but slowed down a bit. We expect to see more," Lake said.
LICs should be taking several measures in advance to avoid becoming a target for takeovers.
"The simplest measures are easy to say but not necessarily easy to do. One is clearly performance, that's a simple measure. Fee structure is also an obvious one. A large fee structure is going to drive a higher discount," Lake said.
Gold said corporate governance was "pretty important".
"I've often been around fund after fund which has been attacked and you say 'do you know your shareholders?' They say yes, but when it actually comes down to it, no they don't. A broker might have spoken to some of their shareholders. They don't realise that they're a pretty unpopular company and people aren't terribly impressed," he said.
"Over the next five years I wouldn't be surprised if 30 or 40 [companies] didn't fall away totally in Australia as a result."
