Twelve days after the credit crunch hit on the night of August 9/10, blue chip investment manager, Perpetual Trustees held a briefing on the group’s 2007 profit. But it wasn’t until yesterday’s annual meeting that we learned that the group had been caught up in the credit market freeze.

All Perpetual would say on the matter at the August 22 briefing was: “Market has strong macro fundamentals and is returning to ‘normality’… Investors are reassessing risk with a focus on long-term investment and a flight to quality”

Not a word since as the likes of Macquarie Bank, Babcock and Brown and the big banks have made statements, accepted questions and explained their positions. But not Perpetual, which has sat on its hands and hoped no one would notice. And they didn’t, until the board and management were forced to tell shareholders the news yesterday.

Chairman Robert Savage told investors that expected growth in first quarter earnings have been clipped from 15% to 10%:

We forecast an increase of approximately 10 per cent in operating profit after tax (OPAT) for the first half of the current year over the prior half year OPAT of $68.8 million.

Events in the credit markets in the first half of the 2008 financial year have resulted in below benchmark performance in Perpetual’s Exact and Enhanced Cash Funds, due mostly to small unrealised losses arising from the revaluation of credit securities.

Excluding the impact of losses borne by Perpetual in respect of these funds, the forecast result for the first half of the current year would be a 15 per cent increase over the prior half year. The forecast is subject to fluctuations in the markets, particularly in Australia.

But yesterday no one thought to ask the board and management just what those credit securities were and whether they were still in loss.

Investment bank Merrill Lynch remarked on the non disclosure, but didn’t take the company to task:

With PPT’s credit losses relating to July and August, it is surprising that no indication of this issue was provided at its FY07 result briefing (Aug-22). However, the earnings impacts are one-off in our view and the implied post-tax loss of $3.4m equate to only 2% of FY08 NPAT. Impacts on outer years are minimal. In addition, these credit losses are unrealised and mark-to-mark impacts could potentially be partly recovered over the remainder of FY08.

But the point is that this activist fund manager, which has pushed for board changes in companies it thinks are under performing, determined the fate of companies in big takeovers (Rinker), has failed to live up to the spirit of the disclosure rules, especially at a time of intense financial pressure in the markets.

Obviously the board and management didn’t want to put their share price under pressure and the likes of Merrill Lynch (which has its own problems in this area) have let them off. Isn’t it all a cosy little corporate club these days?

Perpetual shares fell $2.10 to $73.76 yesterday, a fall of 2.7% compared to the half a per cent fall in the wider market.

Meanwhile, Stephen Mayne reports:

The Perpetual AGM in Sydney yesterday didn’t achieve much in terms of concrete outcomes, but media pressure placed on the company over its status as the biggest shareholder in Gunns was an important achievement.

Perpetual has been on the Gunns register for most of the past 17 years but it has rarely even spoken publicly about the appalling practices that it is profiting from.

That all changed yesterday. Perpetual faced about 30 green protestors out the front of The Westin before the AGM and they opted for a heavy security presence, which included twice searching the bag of my duly appointed proxy and then throwing him out for carrying recording equipment.

A family member arranged a Perpetual proxy for Danielle Ecuyer, the anti-pulp mill independent candidate in Wentworth, and she generated plenty of media attention with her Gunns questions.

PM clearly beat the tough security presence because Simon Santow’s story included audio of Perpetual chairman Bob Savage shutting Ecuyer down as she attempted to exceed the quota of two questions at a time. The Lateline Business story can be watched here and most of the newspapers also gave the issue a good run, even though the bigger news out of the meeting was the company’s profit downgrade due to the sub-prime meltdown.

There was another important issue emerging from the Perpetual AGM which received no coverage at all. When it came to the remuneration report, I got up and pointed out that the eight highest paid executives listed was completely misleading because it did not include Perpetual’s millionaire stock pickers.

This is one of the quirks in the Corporations Act – only those technically deemed to be executives have to be disclosed. This loophole also explains how Eddie McGuire could be secretly paid $5 million a year by PBL as an on-screen personality, but the figure only became public when he became CEO.

Bob Savage defended the secrecy claiming that Perpetual’s highly paid stockpickers might get poached or cost shareholders even more if the figures were disclosed.

This is just rubbish because we all know the fastest way onto the Rich List is setting up a boutique funds management operation, just as two Perpetual alumni, Anton Tagliaferro and Peter Morgan, have done.

And isn’t it hypocritical that the likes of Perpetual equities chief John Sevior can run a media campaign against former Tabcorp CEO Matthew Slatter, including voting down his last incentive package, but then refuse to reveal his own huge package.

The pay packets of fund managers who vote on everyone else’s pay deals should be disclosed. Period.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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