ASIC must reveal the winks and nods.
Glenn Woolley – 12 August 2013
Tennis champion John McEnroe once said, “You cannot be serious!” It’s what came to mind when I learned that some fund managers claim that they gain no investment advantage from having confidential briefings with senior management, and yet argue strenuously to keep that special access.
Why waste time attending these invitation only briefings, or share broker luncheons or site visits, if you think there isn’t a chance of learning new, valuable information; information likely to materially affect the price or value of the company’s shares? Attending these meetings gives invitees an investment advantage over all other investors, particularly retail investors, even if attending only results in confirmation of their thinking concerning the value or price of that company.
The simple reality is fund managers go to these meetings for the precise reason that they believe that to do so will give them an edge on all other share market participants. It’s the enticement implicit in the invitation to attend a selective briefing. Selective briefings were well established before I joined the industry in the mid 1980’s and they continue as strong as ever almost 30 years later.
In my experience, it is not so much what is presented by senior company management to the selected invitees that is especially valuable, it is the responses to the questions asked by fund managers and analysts, and the way the answers are given, that is most valuable. Management can easily forget their obligations not to reveal information that may affect the value or price of their company’s shares at these invitation only meetings. A look here, a wink there, a poor response or comprehensive answer under pressure, can translate into market knowledge that has a dollar value.
Thus, these invitation only briefings have the potential to provide information that the broader share market is not privy to. They create unequal access to information that not only discriminates against the retail investor but those fund managers who are left out in the cold. Since no fund manager can attend every invitation only briefing, then every fund manager is to varying degrees, disadvantaged by selective briefings. Worse, these selective briefings make a mockery of the continuous disclosure regime and create danger for company management and invitees alike. A danger to company executives, because they might reveal information not widely known (possibly insider information). A danger to invitees, because they might act on that information.
It can no longer be denied that it’s an important issue. It has implications for investors and company executives alike. It has implications for the prosecution of accused insider traders. So, what’s to be done about it? ASIC’s decision to attend briefing sessions is a step in the right direction. But it doesn’t go far enough.
After all, it doesn’t take much imagination to realise that having the regulator sitting in on a meeting is going to change its dynamics. What needs to be done is to establish a mechanism whereby information given at an invitation only meeting, is quickly announced to the broader market. Quickly enough to ensure that no one investor has an information advantage over another. In my view, the technology exists. Moreover, ASIC can create the appropriate rules to complement the technology needed to enforce a ‘no information advantage principle’, and thereby enforce a level playing field amongst investors. It would also assist companies comply with their obligations under continuous disclosure rules. In the words of an Australian tennis great, “C’mon!” ASIC, fix the problem.
Glenn Woolley is Managing Director of Intrinsic Investment Management, which manages
$800 million in Australian equities.