Wednesday 3rd of December 2008

This Blog is my observations on how finance companies and fund managers handle their own problems. It’s a story which, no doubt, will ruffle feathers. But it’s also one which may surprise readers. It’s also a bit of a criticism of peers. Since it is about comparisons I will start with a report I saw, or heard, somewhere which made a comparison between Hanover co-owner Mark Hotchin and Air New Zealand boss Rob Fyfe. The guts of the comparison were that Fyfe was up their fronting up and Hotchin was skiving off having a 50th birthday party with his mates in Fiji. The thought this commentator wanted to leave his audience with was that Hotchin was some rich, spoilt brat who had no interest in Hanover investors and their losses. What a daft and unfair comparison. For one, I don’t envy Fyfe; he has the hardest job in New Zealand at the moment. Also, as a journalist and seeing how Air NZ has communicated with the media, I would say that there is only one word to describe the company’s efforts: Outstanding. Hotchin, to his credit has spent days fronting up to investors in locations all around New Zealand. Added to that he, and fellow shareholder Eric Watson, have $60 million tied up in the company and are pledging another $96 million in cash and assets. These guys have more to lose than anyone else. The key difference between them and investors, compared to commentators, is they have something real to lose. But coming back to comparisons, the real one is between Hotchin and a group made up of other finance companies and fund managers. Hanover is fronting with a plan. Hotchin is touring the country and so far has presented to around 3000 Hanover investors. He and Hanover chief executive Peter Fredricson have told, and sold, their story. Whether you agree with it or not is a different story altogether. I sat in on the end of the session Hamilton yesterday. My observation is that investors are very angry, but they give the plan, the people and the company a fair go and, I suspect, will vote in favour of what is proposed. Not many other finance companies have done what Hanover is doing. More to the point, nor have fund managers. It seems to the biggest manager with trouble is ING. It has a similar amount of money at risk through its diversified yield fund and regular income fund, as Hanover. (Around $500 million). However, ING could learn a lesson from Hanover. Ever since it froze redemptions investors and advisers have pretty much been kept in the dark. No one has fronted. There is no sign of a rescue plan. The shareholders aren’t offering more capital. The valuations of the credit funds are as dodgy as those of some property assets. (Indeed many other managers are astounded at the valuation of the units. Most put the value around the zero mark). This is in stark contrast to what groups like Hanover have done. What’s more Hanover is aiming to repay 100c in the dollar and has some assets which have value. This is not the story you hear about credit funds. I suspect groups like ING are headed for trouble. I hear strong rumours that advisers are feed up. They have written to the company and are rallying support to put pressure on ING to front up. First it will be advisers, then they will target retail investors. It has the potential to be unpleasant. ING’s parent company has had a bail out from the Dutch government, but there is little sign that there is much support coming back to New Zealand. My guess is fund management companies are going to have to front up to these issues sooner than later. Otherwise there will be a further loss of investor confidence in managed funds. However, I will note that not all companies can be put into the same boat. For instance many haven't ventured into this space. Some like NZ Funds Management and St Laurence has similarly stepped up to the plate and addressed their issues positively. There are others too. Meanwhile, Hanover is suffering from the tall poppy syndrome, but getting on with its rescue plan. It's now up to the investors to decide whether the plan is acceptable - not the commentators (many of whom have nothing at stake with the company).