As if the financial service world did not have enough dirty laundry, the FT recently put some more rags in the basket. A piece today by Steve Johnson notes that brokers routinely sell access to the heads of some of their corporate clients to hedge fund managers and other interested parties, usually without the CEO being aware of this practice.
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– John Dawson, director of investor relations, National Grid
Worse still, many chief executive slots at investor roadshows are given to hedge funds. They tend to pay brokers the most commission, which 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.
It’s hard to express what am extremely distasteful practice this is. No senior executive should be pimped out by a broker to someone a shareholder or analyst under any circumstance. The fact that this is occurring is yet another sign of the very strange role that the FS system has come to play in the Western world: no longer the facilitator or capitalism; rather, it is now the self-referential buyer/seller information that allows some to make money on the inside while the typical shareholder stands bewildered on the outside.
FT subscribers can read the full piece here: http://www.ft.com/intl/cms/s/0/afa48800-81bd-11e2-ae78-00144feabdc0.html#axzz2MUaYMHrs