Asset Managers And Active Ownership In Spain

The well-regarded magazine Fundspeople published Alex Bardaji’s opinion on the increasing activity of Spanish asset managers in relation to their active ownership.

Alembeeks VotingLab acts as an external research department specialized in corporate governance matters for asset managers based mainly in Luxembourg and Spain.

Legislators identified the flaws in corporate governance of the European quoted companies during the euro crisis, and they have devised new measures to propel the responsibility of asset managers, the main shareholders as a whole in this field.

Indeed, according to Alex Bardaji, director at Alembeeks Group, this new legislation has already borne fruit before being published and some asset managers are already leading their fiduciary responsibility towards higher standards of practice and transparency.


Directors Remuneration

Glance at the 2 Remuneration Maps:

  • Directors Remuneration Analysis - Spanish Companies 2016 - 2015
  • Directors Remuneration Map - Spanish Companies 2016

Created by our Alembeeks VotingLab unit in relation to the main quoted Spanish Companies (data published by the own companies in the Annual Report on Directors' Remuneration).

What does your fund vote?

Find in this link an article of a reputed magazine in the Spanish financial sector in which Alembeeks has collaborated. The article focuses on the lack of participation by some institutional investors in relation to voting in the Shareholders’ Meetings.
As you know, Alembeeks VotingLab helps institutional investors to participate and track their activity with regard to the voting rights of the companies they hold in portfolio.

Moreover, Alembeeks VotingLab analysts generate ad-hoc reports for each Shareholders' Meeting according to voting guidelines of each client. This reports are the perfect guide to face a Shareholders' Meeting with all the necessary information.

This research service and the consulting services of drafting the Voting Guidelines and Voting Policies are the perfect complements of the VotingCloud platform we provide at Alembeeks.

The VotingCloud platform is the tool that allow institutional investors to keep track of their voting activity, one of the currently demands by the internal and external auditors.

Activist investors and Corporate Governance

Activist Investors engagement has been constant over recent years. Despite much being left to be discussed about the issue, this post aims at recommending a couple of articles focusing on the medium to long-term impact of Activist Investor action on companies, shareholders and stakeholders. My point of view is that the positive contribution of these articles, both authored by prestigious researchers and universities, is their different perspectives. On the one hand, Coffee Jr.-Palia proposes a mixed assessment of Activist Investors’ effects in his 2015 article, entitled “The Wolf at the Door: The Impact of Hedge Fund Activism on Corporate Governance”:

“Although some view this trend optimistically as a means for bridging the separation of ownership and control, we review the evidence and find it far more mixed. In particular, engagements by activist hedge funds appear to be producing a significant externality: severe cut-backs in long-term investment (and particularly a reduction in investment in research and development) by both the targeted firms and other firms not targeted but still deterred from making such investments.”

On the other hand, Bebchuk-Brav-Jiang’s 2015 article “The Long-Term Effects of Hedge Fund Activism” affirms:

“We find no evidence that activist interventions, including the investment-limiting and adversarial interventions that are most resisted and criticized, are followed by short-term gains in performance that come at the expense of long-term performance. We also find no evidence that the initial positive stock-price spike accompanying activist interventions tends to be followed by negative abnormal returns in the long term; to the contrary, the evidence is consistent with the initial spike reflecting correctly the intervention’s long-term consequences. Similarly, we find no evidence for pump-and-dump patterns in which the exit of an activist is followed by abnormal long-term negative returns.”

The fact is that Activist Investors activity has been widely debated by the public opinion for the negative effects it could have on the long-term interests of the companies they target.

Be it accurate or not, it may indeed be necessary that they provide better explanations to shareholders and the public. It is probable that this might have been the reason for the Council for Investor Rights and Corporate Accountability’s lobby created at, with interesting Activist Investors related articles. According to its Mission Statement: “CIRCA’s mission is to get out the facts about activist investing and the role activist investors play in our economy. Activist investors directly benefit all public shareholders, including the investment vehicles for all of the country’s stock based savings vehicles, such as mutual funds and public and private pension funds.”

We already have, thus, literature for the weekend.

Hoping this contribution is of interest to all.

Nobel’s Compensation

The 2016 laureates of the Swedish National Bank’s Prize in Economic Sciences in Memory of Alfred Nobel were Oliver Hart y Bengt Holmström, for their research on how contracts help us manage conflicts of interests.

Dr. Hart’s work stems from discerning that contracts are incomplete manuals of instructions that are unable to specify what appropriate actions should be taken in all possible cases. According to him, that is why contracts should focus on defining how to make decisions, identify what is known as the contract’s spirit, instead of a mere always incomplete listing of possible cases.

Nevertheless, we want to highlight Dr. Holmström’s contribution, since it has a greater impact in an aspect that all shareholders find ourselves at least once a year: the approval of the directors’ compensation plan proposal in the General Shareholder Meetings.

One of the conclusions of Dr. Holmström’s research is that it makes sense to retain part of the compensation during a period to enable the evaluation of the results achieved by a director's work. In fact, most quoted companies already have some differed compensation aspects, especially in the case of directors’ compensation, and it is considered an excellence-geared practice to align directive interests with those of shareholders.

However, the current compensation system has a limited impact. Dr. Holmström argues that companies tend to condition these evaluations to the stock performance of their peer companies in the same sector, instead of to the director’s own company performance. According to Dr. Holmström, this practice makes little sense because directors can be compensated or penalized for aspects outside their control.

Taking Telefónica to illustrate, part of its director’s remuneration at short and medium term is conditioned by the quoting evolution of a comparison group including Vodafone Group, America Movil, Deutsche Telekom, BT Group, Orange and Telecom Italia, among others. As pointed by one of the main consulting companies specialized in the subject, one of the reasons for the sharp accretion in directors’ compensation in recent years has been the adverse psychological effects on directors due to applying high discount factors to their differed income. Following these procedures, according to Dr. Holmström’s research, directors studied in the United States tend to have, on average, half of their differed remuneration discounted. As such, a US$ 1,000 differed remuneration would be perceived by directors as a remuneration equivalent to US$ 500.

Another factor in the steep rise of such director’s compensation is that the majority is conditioned to variable aspects as well as both financial and qualitative objective achievements. Indeed, a Pandora’s box is revealed in the case of variable objectives, particularly in times when shareholders’ and directors’ interests do not seem to be fully aligned.

This is what happened in the 2016 General Meeting season to companies like the BP oil corporation, the AngloAmerican mining corporation or the management company Schroders, among others, an episode known in the British press as the shareholder rebellion. It was not unprecedented however, as in 2012 several of the main British companies suffered strong rejection to their directors’ compensation proposals, a phenomenon then called the “shareholder spring”. Yet, this year’s BP case has called particular attention, given that 60% (59.29% to be exact) of the shareholders voted against the juicy compensation proposal to their directors in a year in which the company reported historical losses of US$ 6,500 million, mainly as a consequence of the raw oil prices drop and sanctions due to the Deepwater Horizon platform accident in 2011.

As we can see, directors’ compensation is a complex subject, with no single solution. Notwithstanding, we expect that the Swedish National Bank recognition of these two experts for their research on principal-agent problem management will contribute to a revision of all contracts modulating the shareholder-director relationship and favour a better interests alignment, pursuing to promote the long term value of both shareholder and society. Congratulations to the laureates.

Buyback program? Give us a good reason

Buybacks or repurchase programs refer to when public traded companies buy their own shares from shareholders. This reduces the amount of outstanding shares in the market and alters the capital structure and financial ratios. Buyback programs are currently a common proposal in General Shareholders’ Meetings. As the IRRC Institute published in its August 2016 report: “In recent years, Standard and Poor’s 500 companies have repurchased their shares at a remarkable rate. S&P 500 companies acquired $166.3 billion of their own shares in the first quarter of 2016, more than in any other quarter since the financial crisis. In each of the last nine quarters, at least 370 S&P 500 companies repurchased shares, and over the last three years, S&P 500 companies spent over $1.5 trillion on buybacks.”

One of the most common criticisms of buyback programs are that they lead to large, unfair pay packages for senior managers, as most of these packages are driven by stock performance, and buybacks mean higher demand on the market.

In this sense, shareholders ought to supervise that companies are aware of the relationship between buyback programs and compensation, and that they make deliberate, informed choices to ensure that they reward executives for desired behaviour rather than for financial manipulation of share prices. According to the IRRC Institute, “Investor and public concerns about high rewards for near-term share price growth are primarily about the risk that these incentives pose to long-term value creation. Most directors think that their companies are focused on long-term growth and that their incentive programs reward executives accordingly”.

However, some studies like the one published by Hvass-Lab, find that “share buybacks have an unpredictable effect on the share price”. Also Bloomberg published recently (August 2016) the fact that “the influence of corporate buybacks on share performance has shown signs of waning. Since peaking in February 2015, an S&P 500 index of companies repurchasing the most shares has lost 5.6 percent, compared with a 1.4 percent gain in the equal-weight index of the benchmark gauge.”

The non-causality relationship between buybacks and stock share rises should diminish shareholders’ fear of repurchasing programs causing agency risks. However, it triggers a second fear and common criticism of buyback programs: they jeopardize growth. Buyback programs are funded mainly by cash or, in some cases, debt. According to Hvass Lab, share buybacks should be valued relative to alternative investments, acquisitions, restructurings, etc. to assess which one is the most valuable to long-term shareholders. According to Professor William Lazonicks in his in-depth article available in HBR, there are some cases where buyback programs could be justified, but in many others its use could be negative to the long-term company value.

In conclusion, buybacks can only be evaluated effectively if a company is explicit about the reason or reasons for the repurchase program. Success depends on the purpose of the buyback. In this sense, we should expect to have a good reason supported by the management and sufficient information that enable us to analyse it.

Adepa Global Services and Alembeeks Group announce strategic alliance

Fintech - B2B Corporate governance and traceability solutions

Adepa Global Services S.A. (AGS) and Alembeeks Group S.L. (Alembeeks) are pleased to announce the establishment of a strategic alliance and the signing of an agreement that gives AGS a 20% stake in Alembeeks. The partnership will enable Adepa to have a privileged position in the Fintech - B2B sector focused on corporate governance and traceability solutions while reinforcing the presence of Alembeeks in Luxembourg and its expansion to other EU countries.

As a result of this agreement, both companies will cooperate in further developing leading-edge solutions for the financial services industry. Although synergies generating is foreseen, both companies will remain independently run in their core activity. The agreement ensures that the current Alembeeks' management team will continue to lead operations; furthermore, it offers Adepa a seat in the company's board.

Alex Bardaji, Director of Alembeeks:

"We are thrilled with the arrival of such a well-known market player as a shareholder. On the grounds of Adepa's leading position and experience in the provision of financial services worldwide, Alembeeks will continue to foster its growth path and international footprint."

Carlos Morales, CEO of AGS:

"Our view is to provide our clients with the best solutions in all fields of activity within the sectors we operate and, undoubtedly, I.T. solutions are key. Alembeeks has identified sector niches and developed innovative I.T. solutions that remarkably meet the new challenges. We are convinced that AGS and our clients will benefit from this new relationship and the support of a highly qualified team that is ready to undertake new ventures."

About Adepa

Adepa Global Services S.A. is the group's head company encompassing all subsidiaries, businesses and other interests. In Luxembourg, the group owns the market leader Adepa Asset Management S.A, a fund services specialist regulated by the Commission de Surveillance du Secteur Financier (CSSF) as a Chapter 15 fund management company and AIFM. In Italy, under the name of Adepa Italia Srl, the group serves the financial services industry with pioneering BPO solutions. In addition, AGS is active in the corporate field through Adepa Corporate & Trust Sàrl, an entity regulated by the Ordre des Experts-Comptables (OEC) as a fiduciary company.

Since 1980, Adepa has provided outstanding support to asset managers, banks, investors, private equity and real estate promoters, family offices and independent financial advisors operating around the world.


About Alembeeks

Alembeeks Group S.L. is a service and I.T. provider specialised in the financial sector with special focus on the fund industry. The company runs its operations from Barcelona and Luxembourg. Alembeeks' solutions cover the "governance traceability" concept along with other activities driven by stiff regulatory demands. As practical innovators, Alembeeks helps asset management companies, insurers and banking groups to turn their traditional business processes into mobility tools and other automation technologies towards greater efficiency and value.

UK property funds suspended

In the last week more than 18 billion pounds ($23.26 billion) of retail investor cash has been frozen as funds run by M&G Investments, Standard Life Investments and Threadneedle Investments, among others, suspended trading to allow time to sell some of the buildings, a process which can take many months.

As fund director, have you already checked if the funds under your mandate have been impacted?

"Henderson Global Investors, part of Henderson Group (HGGH.L), said on Wednesday it had temporarily suspended trading in its 3.9 billion pound UK Property PAIF and PAIF feeder funds due to "exceptional liquidity pressures" given uncertainty after the Brexit vote and the other suspensions.

It was followed within the hour by Columbia Threadneedle, part of the Ameriprise Group (AMP.N), which said it had suspended trading in its Threadneedle UK Property Fund.

Canada Life said it had also suspended its Canlife Property and Canlife UK property funds, describing this as a deferral of requests to withdraw investments. "The deferral can be for up to six months, enabling the funds to ensure property values reflect market conditions," it said in a statement.

Late on Wednesday, Aberdeen Asset Management (ADN.L) said withdrawals from its 3.2 billion pound UK Property Fund which it had received before 1100 GMT would face a 17 percent dilution levy, and that it would not fulfil later orders. It expected to re-open the fund at 1200 London time on Thursday.

They joined rival funds managed by M&G Investments (PRU.L), Aviva Investors (AV.L) and Standard Life Investments (SL.L) which suspended trading on Monday and Tuesday.

BlackRock Inc (BLK.N), the world's largest asset manager, on Friday told investors that it raised quarterly redemption charges on its 3.3 billion pounds BlackRock UK Property Fund to 5.75 percent, from 2 percent."

Source: Reuters

Enter and improve your controls. If you are not an Alembeeks user, contact us at


Brexit - Improve your controls

As global financial markets convulse in response to the stunning outcome of the U.K.'s referendum, now is the perfect timing to pose the right questions to the Investment Managers and Risk Officers of the funds under your mandate and start generating proof of your supervision activity.

It is also the time to follow up with your Business Developers and check either current clients are likely to postpone plans or they assess this event as an opportunity to start new projects. Enter and improve your controls.

In case you are responsible for a department, you must have had plenty of inputs (articles, conversations, …) from other experts and clients that may be also valuable for your colleagues. Enter and be the first to share this information proactively.

Find some points that could be shared:

- What has been the impact of this "Black Friday" in our funds in terms of NAV?

- Are our funds exposed to GBP? Are they hedged?

- Did Investment managers take measures during the day? What are the scenarios they are considering?

- Which is our exposure to British investors or clients?

Find an article that summaries what it was the morning after the Brexit.

Audit firm rotation. EU and US disagree.

In 2010, the European Commission released a public consultation, Green Paper on Audit Policy, and a year later the Public Company Accounting Oversight Board in the US also published a public consultation, Concept Release on Auditor Independence and Audit Firm Rotation, which both included questions about whether mandatory rotation of audit firms should be implemented or not. The main suggestion in both public consultations was that the rotation would enhance auditor independence and increase audit quality.

However, in 2013 the legislators in the US decided to prohibit a regulation on mandatory rotation of audit firms whereas the EU legislators, in 2014, decided to adopt the regulation to force public interest entities to change audit firms within a maximum period of ten years. These two different decisions by the EU legislators and the US legislators are interesting since they both wish to achieve the same purpose; to improve audit quality and auditor independence.

Still, they used two approaches that are contradictory to each other.

And you, as investor, would you support a mandatory audit firm rotation or not?


Source: Jönköping International Business School, Fredrik Jönsson & Johan Ottosson