Fears rise over cash for access

Investment banks are charging asset managers up to $20,000 an hour to meet the chief executives of their corporate clients – often without the chief executives having any idea that their time is being sold.

The revelation comes amid a push by regulators and the fund industry in the UK to lift the lid on payments for corporate access, although the practice is also commonplace in continental Europe, the US and, increasingly, Asia.

“We find [these payments] absolutely unacceptable,” said Richard Davies, an investor relations consultant who quoted typical figures of $20,000 an hour for a chief executive and $15,000 for a chief financial officer.

The head of investor relations at a FTSE 100 company added: “The numbers I hear are quite scary sometimes. I would hate my chief executive to find out that his time is worth £10,000 an hour.”

These “hard cash” payments are typically made by hedge funds to their prime brokers – investment banks that can give them face-to-face access to the senior management of their corporate clients.

But concern is also rising about the more widespread issue of banks and brokers receiving “soft” commission payments from mainstream asset managers for similar access.

Figures from the annual Thomson Reuters Extel Survey show European asset managers paid 29 per cent of their dealing commissions for corporate access in 2012, up from 21 per cent in 2010, despite a 2006 ruling in the UK by the Financial Services Authority that commissions should only be paid for execution or research.

A quarter of asset managers in both the US and the UK allocate more than half their commissions for corporate access, according to research by CA Cheuvreux, a French broker.

Yet, according to one figure involved in the process, “until recently, I don’t think that a lot of chief executives were aware their time was being sold by their own brokers”.

Daniel Godfrey, chief executive of the UK Investment Management Association, who questions why fund managers are paying “rents” to third parties for corporate access in the first place, adds: “A rudimentary straw poll of corporate communications advisers and chief executives indicated that many of them weren’t aware that investors and potential investors were paying to see them.”

For a hedge fund, £20,000 spent on meeting management could be quite a good investment

Worse still, many chief executive slots at investor roadshows are given to hedge funds. They tend to pay the most commission to brokers, but may then go on to short the company.

“The conflicts of interest are potentially huge here because chief executives want to meet investors who are, by and large, likely to buy their stock, [not] hedge funds who may go and short the stock,” said another industry figure.

John Dawson, director of investor relations at National Grid, added: “One gets annoyed and suspicious when you find out that your resource is effectively being used as a currency by sales teams”, especially for their high value clients or hedge funds who have the resources to get access to management. “For a hedge fund, £20,000 spent on meeting management could be quite a good investment.”

Mr Davies added: “Hard cash payments from hedge funds to meet companies is a murky world because the companies are not aware of the fiscal imperatives behind these meetings.”

Emma Burdett, who chairs the policy committee of the Investor Relations Society, called for greater transparency about payments, and clarity as to the capacity in which the broker is acting. “It is clear that in many cases now, standard non-deal roadshows are often not fit for purpose and not the most efficient use of management or investors’ time.”

However, some said house brokers needed to find a way of monetising their relationship with companies, which tend not to pay them a retainer, to cover the cost of staging roadshows. One industry figure said: “I feel sorry for brokers because they’re not making any money and are probably desperate for money from somewhere.”