MUCH has been said lately regarding fund managers’ new interest, some would say interference, in companies they invest in.
A recent example, though not particularly Western Australian, is moves by a Colonial fund manager against the appointment of TAB Ltd MD Warren Wilson as the head of a new betting entity created from the merger with Queenland’s UNiTAB.
While this is a strong example of fund managers rolling their sleeves up to offer mostly unwanted help to boards and management, it is not completely isolated.
In the current climate it is being dressed up as a new-found love of corporate governance, but I can’t help wondering if it simply isn’t market forces at work.
In both the stock market and the fund management industry, consolidation has worked its magic to produce more and more behemoths that dominate the top of the tree, leaving more than just daylight between them and the next level.
That creates problems for those who invest in companies.
They can no longer switch their capital between different players in the same industry simply because the choices available to them have been limited by the mergers that have taken place.
After newly merged businesses have squeezed out the benefits of scale, investors see fewer rewards for their loyalty – a bit like customers they have so handsomely profited from.
But what options do they have for alternative investment when the competition has been gobbled up?
This issue is exacerbated by rationalisation of the fund management business, which has left fewer players managing more money.
It is very hard for these guys to shift their money easily because they have got so much of it. Firstly, they can’t exit a stock without sending a major signal to the market and, secondly, there are fewer companies down the food chain capable of absorbing the amount of capital they have got to invest.
They are like a clumsy giant stuck in a big house with very small doors. If they don’t like it they can’t leave, they have to renovate.
I think that might partially explain what is happening. With little option but to stay on as stakeholders in companies they traditionally would exit, fund managers realise their fortunes are more closely tied than ever to management decision making.
And that’s maybe why there’s been sudden interest and, dare I say it again, interference. Anyway, it’s just a theory.
Pack your bags
GLAD to see that backpackers are getting their deserved recognition as the saviours of Australia’s tourism industry.
Undeterred by global terrorism and unilateral war, they have spent $2.6 billion a year in our country – double per capita what the traditional short-stay, hotel-dwelling package tourist does.
At WA Business News we have stated before how important this market is and how underestimated it has been as an economic powerhouse.
But I still think the news is getting it wrong.
The real value is not in what backpackers spend now, it is how they view Australia in the future – bearing in mind that backpackers are typically well-educated people from the richest nations with their whole lives ahead of them.
With a bit of luck they will become buyers of our products, be it for nostalgic or practical purposes (such as health). And some may seek to emigrate here and make their fond memories more permanent. They will want to visit again (this time as richer people) for holidays or investment and they will send their children here to do the same in 20 years’ time.
Power in the upper house
ANOTHER thing I have done in this column previously is wonder at the unusual alliances that have occurred due to the wrangle over the future of Western Power.
Facing off are the State Labor Government and the WA Chamber of Commerce and Industry (is that the red corner or the blue corner?) in the ring against the WA Liberal Opposition, the unions and the Greens.
While I have long been suspicious that the break-up of Western Power would be done wrongly (and promising never to privatise the disaggregated authority or any of its part is definitely silly), I still think that it is a step in the right direction.
At the very least it separates the network from the rest of the business (if only they could do that with Telstra … despite what the telco says), which offers some room to allow commercial forces to work.
I can’t see that blocking such a decision by a democratically elected government is going to achieve anything positive for the State.
If anything, it adds weight to those who say that upper houses may have had their day.
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