Lessons from Privatising

Internalising and Winding Up Externally Managed Entities

Externally managed listed asset vehicles in Australia (including listed infrastructure funds) have recently received privatisation and winding up proposals. This has occurred in concert with moves to sell assets, reduce debt and privatise management in response to investor concern about the gap between asset valuations and falling security prices. Notably hostile takeovers have been absent from the suite of corporate activity observed to date.

This thought provoking paper from RiskMetrics’ Australian team draws on the lessons learned from the privitisation, internalisation and winding up proposals in the sector in 2008. It details that any hostile corporate activity may face serious obstacles including Fee structures and restrictive management agreements, Preemptive rights, Debt covenants and ‘Priority’ protocols. Where ‘successor’ funds are unlisted externally managed asset vehicles, similar governance features prevail.

Many of the impediments to third party proposals for listed asset vehicles only became apparent after corporate activity began. This indicates a systemic disclosure failure. To address this information shortfall, the paper recommends that ASX, as market supervisor, improve the disclosure regime for externally managed listed asset vehicles.