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| A fund managed by Macquarie invested in the Seoul-Chuncheon Highway, which opened in 2009. Courtesy of Seoul-Chuncheon Highway |
Platform throws down gauntlet to Macquarie on fees
By Park Hyong-ki
Platform Partners Asset Management will continue to fight Macquarie Korea Asset Management over what Platform claims is Macquarie's "irregular and unreasonable management fee and incentive structure."
Macquarie said last week in a press statement it would lower its fees by 8 percent from what it collected in 2017, in accordance with the Macquarie Korea Infrastructure Fund's (MKIF) enterprise value, without taking into account its net debt.
Platform responded Macquarie's fee reduction move is "insignificant and meaningless," adding it will up the ante against the Australian fund manager at its shareholders' meeting on Sept. 19.
As an activist investor, Elliot Tcha, Platform's managing director, believes Macquarie has been collecting "too much" in management fees and incentives for the small amount of work it has been doing for the fund's shareholders, including its minority ones.
He said Platform wants to set things right once and for all.
"Minority shareholders are shareholders. Our voices about this issue need to be heard at the meeting," Tcha said in an interview with The Korea Times in Seoul.
"We are not going after the money Macquarie has earned over the last two decades since the fund's stock listing. The management contract is hurting shareholder value. Our fight is to make it fair and reasonable."
Macquarie has been managing the MKIF since the early 2000s. The MKIF has 12 infrastructure assets including the Yongin-Seoul Expressway, Seoul-Chuncheon Highway and Incheon Airport Expressway.
Platform holds a 4.99 percent stake in the fund, with a 3.2 percent voting right. Macquarie Group has 3.6 percent of the fund. Tcha worked at Macquarie Korea for about 10 years before joining Platform, an asset manager and a shareholder activist that invests in infrastructure and biotechnology.
Macquarie has earned 535.3 billion won ($475 million) from managing the fund since 2006, Tcha said, citing its data.
The Australian asset manager has taken an average of 30 percent of what the fund's shareholders have received as returns on investment. Macquarie also gets incentives when the fund's stock price increases.
For instance, when the fund surpasses 10,000 won per share, Macquarie gets 60 billion won in incentives. The higher the incentives it gets, the lower the returns for its shareholders because Macquarie delivers the returns after subtracting its fees and incentives, Tcha explained.
The fund is currently trading little above 9,000 won per share.
This is why its shareholders do not want to see the share price of the fund to go up, leading some investors to unload its shares to keep it below 10,000 won.
Tcha said Macquarie is making "excessive gains" from those 12 infrastructure assets whose positive cash flows are guaranteed by the government. The assets' main source of revenue is toll fees and taxes paid by people and residents.
In other words, Macquarie is just sitting back without putting out a lot of effort or reinvesting its gains, and acting like a "chaebol" with a minority stake but thinks it is in full control over the 12 assets as if they were its subsidiaries, he added.
"It is working only for Macquarie Group's interest, and not for its shareholders," Tcha said. "Fund managers are like butlers. If they do not work hard or at all, their employers have the right to change or let them go."
This is the reason Platform Partners in alliance with other minority shareholders has called for the fee reduction and change of fund manager, aligned with standards in advanced countries.
The country's securities law only allows boards to decide on management service fees. And Macquarie had used "delayed tactics" by not responding to Platform's calls. Macquarie asked Platform recently for a certificate of proof showing the activist was one of the fund's shareholders, he noted.
Platforms then sent it to Macquarie, and requested to hold a shareholder meeting where it seeks to raise the fee issue with other shareholders.
"How can a fund manager not recognize its investors? It has deliberately been delaying opening a meeting, and framing this as a hostile takeover by us. This is nonsense," Tcha said.
"Only the board can decide on the fees. But we can raise the issue at the shareholders meeting and gather a consensus, while demanding a change in the fund manager."
It seeks to change it to KORAMCO REITS Management & Trust, which agreed to manage the fund at one-eighth of Macquarie's management fees. KORAMCO would manage it until the fund selects a new asset manager through a "fair bidding" process, he said.
Macquarie gets fees 20 times more than what KDB Infrastructure Investments Asset Management receives for managing the investment in the Seoul-Chuncheon Highway, Tcha noted.
"Any managers such as KB or Mirae Asset can then come in and bid for it."
Earlier, Macquarie said its fee structure is similar to that of other global infrastructure funds, citing Brookfield Infrastructure Partners (BIP), John Laing Infrastructure Fund (JLIF) and 3i Infrastructure as examples.
Tcha, in response, said they are similar.
But he stressed the big difference is "they are active investors and Macquarie is a passive one," adding BIP and 3i and JLIF have been actively investing and reinvesting their own money and gains in new projects and assets over the years.
The number of assets MKIF invested in over the last decade is zero, and Macquarie Infrastructure Corp. in the U.S. has not made any investment since 2015, according to data provided by Tcha.
There were eight listed funds managed by Macquarie with a similar fee structure. Seven no longer exist following their shareholders' discontent over management. Only one continues to exists, and that is MKIF.
"Shareholder activism is about engaging to fix what has gone wrong and change to make a better investment environment," Tcha said.
