THE THIRD SOUTH EASTERN EUROPE
CORPORATE GOVERNANCE ROUNDTABLE
Zagreb, 21-22 November 2002
The Role of Institutional Investors
in Corporate Governance
Case of Romania
Cristina Hodea, MBA
Institutional investors universe
domestic financial investment companies- most
important and diversified portfolios (5 players)
foreign portfolio investors (7 players out of which 4
have important investments on Romanian capital market)
venture capitalists (10 players, invest mainly in private
equity, but have few participation in listed companies; one of the
envisaged exit strategies is listing the company)
domestic mutual funds (7 portfolio management
companies; mainly invest in money market; tend to increase the
investment in capital market)
Institutional investors universe
insurance companies
-most of them invest mainly in Romanian T-bills and bank deposits
-international players prefer to invest in international capital
markets
-some examples of :
-Nederlanden has investments in stock of companies listed on
BSE
-Unita invests in listed and unlisted tourism companies
-Asirom invests mainly in companies where controlling
shareholder has control
Institutional investors universe
Privatisation institutions
– special institutional investors
– majority, controlling but also minority shareholders;
– goal: preserve/increase the value of the company; restructure it
in order to become more appealing to strategic/portfolio
investors)
– should implement and promote OECD corporate governance
principles where are stakeholders
International institutions (IFC, EBRD, EBRD)
Banks prefer less riskier investments
No pension fund
Survey respondents
Type of respondents
Romanian
mutual
funds
15%
Foreign
portfolio
investors
30%
Romanian
financial
investment
companies
25%
Venture
capitalists
30%
Privatisation institutions, insurance
companies, international institutions were
not subject to the survey
Questionnaires were sent only to managers
of institutional investors
70% response rate, over 80% for Romanian
financial companies and foreign portfolio
investors and only 43% for mutual funds
68% of respondents invest for capital
growth, only 28% investing for income
generation
76% of institutional investors have an active
investment policy
Main findings
• The priority in order to strengthen corporate
governance should be enforcement of existing laws and
regulation while improving legal framework
• 74% of respondents consider lack of experience and
precedent in judicial system as well as corruption the
main obstacles in enforcing legal framework;
• half of respondents consider insufficient training and
expertise of SEC’s staff to deter law enforcement
Main findings
• Respondents consider that the auditors of the company
have a moderate contribution in increasing
transparency of financial information
• On a scale 1 to 5 (1 - poor, 5 -excellent) the
institutional investor evaluate:
–
–
–
–
–
representation in the board of directors
existing accounting standards
disclosure of information
fairness in formation of governing bodies
regulatory framework on investment
2.88
2.59
2.53
2.53
2.35
Main findings
• All respondents are mainly minority shareholders, although
some have also control and majority participation
• Exit strategies preferred by institutional investors seem to be
direct negotiations with other investors and capital market in
similar percentages
• 93% of respondents the most important factors in
selecting a target are the quality of management and
financial issues; payment of dividends is regarded as
less important.
• The most important perceived risks are protection of
shareholder rights and management competence.
Main findings
• 65% of institutional investors declare to have an investor relation
unit able to provide:
–
–
–
–
financial statements for last semester/quarter,
information for next shareholders’ assembly,
inform on material events from last assembly,
minutes of the assemblies
• over 70% of the institutional investors disclose information
about their portfolio monthly or at shorter periods, using
traditional communication means or company web site
• all managers have access to the balance sheet and income
statement of the institutional investor they work for, but only
84% to the statement at cash flow and shareholders’ equity
Main findings
• 75% of respondents consider that the board should include
representatives of majority shareholder, institutional investors
and minority shareholders, but also independent experts from
the industry.
• 75% know remuneration of board members of institutional
investor, in most cases from annual budget
• 86% know the other occupations of board members from CVs
presented when they were elected; less than 25% have more
current information
• although 77% of respondents have detailed internal rules to
avoid conflict of interest, less than 50% know about potential
conflict of interest disclosed by board members
Romanian financial investment companies
•5 investment companies born during privatisation process
•closed end funds with millions of shareholders and owning
portfolios with hundreds of companies (both majority and
minority shareholders)-act in this dual capacity
• maximum stake permitted by the law is 0.1% of share capital
• none of the financial investment companies inform which
shareholders reached the 0.1% threshold
•4 have web sites available
Romanian financial investment companies
– all provide on the web sites annual, quarterly reports which
include
– financial statements
– budget execution
– structure of portfolio
– lawsuits
– portfolio risk
– 3 provide information on
– company objectives
– dividend payment schedule
– contact person
Romanian financial investment companies
•only 2 inform stakeholders
•who are Board members,
•who manages the company,
•issues discussed and decisions of the
shareholders’ assemblies
- only 1 presents:
•information on major transactions
•CV of the board and management
•remuneration of board members
Romanian Mutual Funds
-Relatively low investment in capital market, as minority
and very small investor
-portfolio management companies:
1.CERTINVEST - Intercapital
2.VANGUARD ASSET MANAGEMENT -FON
3.QUADRANT ASSET MANAGEMENT – STABILO, Integro, FDI
4.GLOBINVEST – NAPOCA
5.ACTIVE MANAGEMENT – ACTIVE Dinamic, Junior, Classic
6.CAPITAL ASSET MANAGEMENT - FORTUNA - CLASSIC
- mutual funds web sites reveal the following aspects:
Romanian Mutual Funds
Nr.
Crt.
Investment
Policy
X
Current,
periodic
reports
X
Who are
trust/board
members
X
CV board/
Board
management members
members
remuneration
X
1
2
X
X
X
X
3
XX
X
X
4
X
X
X
XX
X
X
5
X
6
X
X
Romanian Mutual Funds
Portfolio
structure
1
2X
3X
4X
5
6X
Riskeness History
X
X
X
X
X
X
X
Investor Contact
education/ person
guidance
X
X
X
X
X
X
X
X
Institutional investors activism
• Most institutional investors
– participate to all shareholders assemblies where they invest
– are represented in the board of directors and other governing
bodies in some cases
– have many court trials when abused by majority shareholders
• Set up in 2000 by most active institutional investors,
Romanian Shareholders’ Association has the mission to
protect the interests of Romanian Companies'
shareholders and to introduce and enforce the
OECD principles of corporate governance
• Outlook: new capital market legislation with provisions
closer to the OECD principles and best EU practices