MBA student Lancelot Yu gave the directors of investment company Hunter Hall a right work over at their recent AGM in Sydney.

Despite the salubrious surrounds, only 50 shareholders turned up and many of them seemed to be mutual fund shareholders or financial planners. Luckily the staff wore different badges so they were quickly visible.

The executive chairman, Peter Hall shook a few hands before the meeting, including mine, but I had the decency to warn him I would be grilling him.

He grinned and said he was looking forward to some – ha!

He then opened the meeting with a prepared speech which was then followed up by the CEO, David Buckland who had a PowerPoint slide presentation talking about mutual fund inflows. He then turned it over to the questions. I spoke last and the questions are below.

There were four other shareholders who wanted to quiz management, which was about mutual fund performance. Apparently Hunter Hall Investments doesn’t charge fees if they under-perform and apparently two out of the three funds were under-performing against their relative benchmarks.

The next question alluded to Peter Morgan (superstar stock manager at Perpetual and since leaving inflows have turned to outflows) and the implications of whether it could happen to Hunter Hall Investments.

The answer was that the executive chairman and portfolio manager Fred Wollard were very happy in their jobs for at least the next ten years for the foreseeable future. However, they said “retirement is death” and couldn’t see themselves on the beach.

This led to a quip from a shareholder “the shares should be such so that they could be on the beach!”

Another question referred to the volatility of the shares (from $4 to $7.50 and down to $3.85 and back to $4.80 in less than 9 months). The chairman said the stock was volatile because of illiquid trading.

I asked the following questions:

Intro: Good morning fellow shareholders and board members. I am Lancelot Yu, a MBA student at UTS holding 400 shares. Firstly let me congratulate management on another excellent year of performance. My series of questions are designed to enlighten shareholders and myself how Hunter Hall operates and if possible improve operations.

Question 1: Is Hunter Hall thinking of holding electronic voting for its proxies next year? I understand our register Computershare has this option. I am sure this is much more cost efficient and accessible instead of relying on the reply mail concept.

Answer: Ouafaa Karim (company secretary) replied that they are actively considering it.

Question 2: These series of questions refer to board performance. Can the Chairman inform shareholders if the non-executive board members hold meetings without management present? If not, why not? I believe fuller discussion occurs when management is not present.

Question 3: I note the fact that the 55.6% of the shares is linked to Hampshire Asset Services. How can the independent directors do their role if they directly know that the majority shareholder is responsible for their existence on the board? Can they bite the hand that feeds it?

Answers: Independent Director Mark Forstmann answered this strongly and said he would resign if management ran roughshod over the non-executive directors. He said that the NED’s often meet informally without management present to discuss issues and grill management over each proposal. He said he could afford to quit the board if things aren’t right.

NED Suzanne Daniel also piped up to say to reaffirm that. After the AGM her mother was with her and she told a female shareholder that she took issues from the “sunlight test”. As she was a former journalist she would ask herself if the issue would want to be on the front page whether it was legal or not.

Question 4: Since there is a downturn in international markets do you short shares. I understand Platinum Asset Management shorts shares that are overvalued.

Answer: Derivatives are not used except for currency positions.

Question 5: These series of questions refer to corporate performance. Can you tell me Mr. Chairman the difference between the Executive Chairman and Managing Director’s roles are?

Answer: Apparently the CEO is in charge of the funds manager who is involved on the day to day basis. The managing director is in charge of the holding company above the fund manager, which does not involve much work except for direct investments.

Question 6: This question refers to executive remuneration. Mr. Chairman can you tell me why you charge a consulting fee (256,149) instead of a salary. Are you an employee of the company? Can you tell me how the performance bonus (895,573), which is approx 350% of your consulting fee, determined?

Answers: Zinged him on this one. The Chairman replied that he was actually an employee of Steed Investments, which provided investment advice to Hunter Hall Investments as a consultant. Bonuses are determined by the quality and result of the ideas.

Question 7: This question refers again to executive remuneration. I refer to the fact that these committees 2 out of 3 member are inside directors. How can the non-executive director Mr. Wayne Hawkins ensure that management will not award them outlandish pay when he will be in a minority if he ever dissents? I would like a response by Mr. Wayne Hawkins.

Mr. Wayne Hawkins said it wasn’t perfect being outnumbered (I say look at Argo Investments Owner Manual where it says the remuneration committee is composed of 2 NED’s) and the Executive Chairman says it’s under review. Anyway the committee’s results go to the board. Well like Arnold Schwarzeneggar (sic) “I’ll be back !!”, if changes won’t be made.

Question 8: I note that the United States SEC is proposing a regulation that would make it mandatory for mutual funds to disclose their votes in proxies in companies they hold. What do you think and what has been HHL record in voting in proxy battles such as Coles Myer?

The Chairman thanked me for this question and said he was very affirmative in this proposal and passed me to Jack Lowenstein whom is the corporate affairs officer. The Chairman said that Hunter Hall investments has a philosophy of buying big stakes in under performing companies and talks to management to ship up or ship out.

Question 9: I asked a question about their new premises and costs.

They said their new premises in Level 2, 60 Castlereagh St used to be BNP Paribas’. However they signed for 10 years and made redundant 2/8 floors so they screwed BNP for a sublease and got 1/2 a floor for $236,000 per annum. It seemed very strange that they would retain half of their Double Bay offices and I commented on this. They said it was a refuge from the city and it was close to all the executive houses. That sounds very indulgent of the company’s money.

I got a round of applause after my last question as I was probably holding up everyone’s tea and bikkies.

I shook the Chairman and the 3/4 Non Executive Directors who all said they really appreciated my questions. (What else were they going to say? “Your questions suck!”). The NEDs said that my questions are exactly the type they ask at board meetings.

I had to leave at 11am for a job interview but the mutual funds were having their AGM. I was really surprised at the turnout, it looked like about over 200 who wanted to know what’s happening to their money.

I’m sorry I couldn’t stay behind to report on the Worldcom Bonds investment.

Peter Fray

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