Governance issues will dominate considerations during this year's AGM season for fund manager Dimensional Fund Advisors.
Dimensional manages about $AU800bn globally from 13 offices around the world, including two in Australia. Its clients are institutional investors and fee-based advice firms. The fund manager has long integrated environmental, social and governance considerations into its investment processes, having launched its first sustainability strategy in 2006.
Governance remains a key source of analysis for Dimensional, said Bhanu Singh, head of Asia-Pacific Portfolio Management, and governance issues are prominent in this year's AGM season in Australia.
"The governance issues we are paying attention to are fairly broad, but include ensuring directors are suitably experienced and skilled to carry out their responsibilities, ensuring executive pay is not excessive and is aligned with the company's performance, and monitoring the costs of additional climate change disclosures against the potential benefits," he said. "We will engage with management to better understand issues or share our views and we will vote to defend the interests of our clients."
Of particular interest this year is the impact of capital raisings carried out in response to the initial onset of the COVID-19 pandemic.
"This is a very big topic for us because we've had experience with this post-2008 and we learned quite a few things there," Singh said. "The problem is they're big transactions, with big discounts and done a big hurry, which lends itself to shareholder abuse. Our preference would be that these kind of capital raisings are a renounceable rights raising."
Following the ASX's introduction of temporary emergency capital raising relief in April due to the pandemic, more than $33 billion has been raised through 72 capital raisings, mostly as placements, and at a median discount of 9.4%, Dimensional said. Companies have gone to market primarily to shore up their balance sheets and improve financial flexibility. Among them have been Qantas, Oil Search, Flight Centre, Southern Cross Media and Webjet.
"After the changes came in, we engaged with ASIC and the ASX as well as with investment banks, proxy advisers and investment representative groups," Singh said. "Our concern was these placements, even allowing for the pressures of COVID, should not be conducted in a way that dilutes existing shareholders' economic and voting interests.
"We advocated for enhanced disclosure requirements and improved transparency. The ASX subsequently announced tighter rules on the allocation process, including requiring companies to specify what efforts were made to undertake a pro-rating raising. We think that was a good outcome."
Executive remuneration was the most-discussed topic with portfolio companies in 2019, Singh said, usually having to do with pushing for greater transparency in remuneration reports.
Dimensional set up in Australia in 1994, initially as an Asia Pacific trading office for the US business. From 1999, it began offering strategies for Australian and New Zealand investors. It now manages more than $AU30 billion for local clients.