1. Special Topics in Corporate Governance
Dr. Güler Manisali Darman
BA 4834
2. Impact of Institutional Investors on Corporate
Governance Practices of the Companies
23 March 2012
3. Four specific developments increasingly;
bring the systems closer,
open national markets to international cooperation
augment the importance of stock markets.
These developments are;
growing role of institutional investors,
the integration of financial markets,
the increased role of shareholder activism, and
the recent wave of privatizations.
4. The ownership and control structure of a
corporation should be fully transparent to all
shareholders under all circumstances
Shareholders are often referred to as the
“owners” of the corporation.
They can choose which
companies to invest in, and
the companies count them
on that basis
5. Institutional investors are becoming more important in
global financial markets, with their assets under
management rapidly catching up with those of the
banking system. Institutional investors help to ensure
deeper and better functioning markets, thus contributing
to a more efficient allocation of savings, and their growth
may help to counter the decline of household saving
ratios associated with ageing populations.
Institutional investors include;
mutual funds,
pension funds,
insurance companies, and
similar private institutions like hedge
Funds, Sovereign Wealth Funds etc.
6. mutual fund is a type of professionally-managed type collective
investment scheme that pools money from many investors. While
there is no legal definition of mutual fund, the term is most
commonly applied only to those collective investment schemes that
are regulated, available to the general public and open-ended in
nature. Hedge funds are not considered a type of mutual fund.
There are 3 types of U.S. mutual funds: open-end, unit investment trust and closed-end. The
most common type, the open-end mutual fund, must be willing to buy back its shares from its
investors at the end of every business day. Exchange-traded funds are open-end funds or unit
investment trusts that trade on an exchange. Open-end funds are most common, but exchange-
traded funds have been gaining in popularity.
A pension fund is any plan, fund, or scheme which provides
retirement income.
7. hedge fund is an investment fund that can undertake a wider range of
investment and trading activities than other funds, but which is only open
for investment from particular types of investors specified by regulators.
These investors are typically institutions, such as pension funds,
university endowments and foundations, or high net worth individuals. As
a class, hedge funds invest in a diverse range of assets, but they most
commonly trade liquid securities on public markets. They also employ a
wide variety of investment strategies, and make use of techniques such
as short selling and leverage.
Hedge funds are typically open-ended, meaning that investors can invest
and withdraw money at regular, specified intervals. The value of an
investment in a hedge fund is calculated as a share of the fund's net asset
value, meaning that increases and decreases in the value of the fund's
assets (and fund expenses) are directly reflected in the amount an
investor can later withdraw.
8. Most hedge fund investment strategies aim to achieve a positive return
on investment whether markets are rising or falling. Hedge fund
managers typically invest their own money in the fund they manage,
which serves to align their interests with investors in the fund.] A hedge
fund typically pays its investment manager a management fee, which is a
percentage of the assets of the fund, and a performance fee if the fund's
net asset value increases during the year. Some hedge funds have a net
asset value of several billion dollars. As of 2009 hedge funds
represented 1.1% of the total funds and assets held by financial
institutions. The estimated size of the global hedge fund industry is
US$1.9 trillion.
Because hedge funds are not sold to the public or retail investors, the
funds and their managers have historically not been subject to the same
restrictions that govern other funds and investment fund managers with
regard to how the fund may be structured and how strategies and
techniques are employed. Regulations passed in the United States and
Europe after the 2008 credit crisis are intended to increase government
oversight of hedge funds and eliminate certain regulatory gaps
9. Sermaye Piyasası Mevzuatında Serbest Yatırım Fonları
Türkiye'ye yatırım yapan yabancı kurumlar arasında "hedge fonlar" da yer almakta
olup Türkiye'de bu tür fonların kuruluşuna imkan sağlamak üzere Kurulun Seri:VII,
No:10 sayılı "Yatırım Fonlarına ilişkin Esaslar Tebliği"nde yapılan değişikliklerle,
AB'ye giriş sürecinde fon endüstrimizin hizmet kalitesi ve çeşitliliğinin artırılması,
Yatırımcı risk getiri beklentilerine uygun yatırım araçlarının ortaya çıkması ve hizmet
kalitesinde artışa paralel yatırımcı tabanının genişlemesi,
amaçlanmıştır.
Yatırım stratejisi ve limitlerini içtüzüklerinde serbestçe belirleyebilme imkanına sahip,
yalnızca nitelikli yatırımcılara satılabilen, "Serbest Yatırım Fonları" (SYF) olarak
adlandırılan söz konusu yatırım fonlarına ilişkin temel düzenlemeler aşağıda yer
almaktadır:
1. Serbest Yatırım Fonları
"Hedge Fund" karşılığı olarak "Serbest Yatırım Fonları" adının kullanılması
öngörülme Bu fonlar, katılma payları sadece nitelikli yatırımcılara satılmak üzere
kurulmuş olan yatırım fonları şeklinde tanımlanmaktadır.
10. 2. Yatırımcılara İlişkin Kısıtlar
Serbest Yatırım Fonlarının yalnızca nitelikli yatırımcılara satılması tercih edilerek, fon
yatırımcıları için asgari yatırım tutarı ya da maksimum yatırımcı sayısı konusunda
sınırlama getirilmemiştir.
Tebliğ uyarınca nitelikli yatırımcı,
Yerli ve yabancı yatırım fonları, Emeklilik fonları, Yatırım ortaklıkları, Aracı kurumlar,
Bankalar, Sigorta şirketleri, Portföy yönetim şirketleri, İpotek finansmanı kuruluşları,
Emekli ve yardım sandıkları, Vakıflar, 506 sayılı Sosyal Sigortalar Kanununun geçici 20
nci maddesi uyarınca kurulmuş olan sandıklar, Kamuya yararlı dernekler
Nitelikleri itibariyle bu kurumlara benzer olduğu Kurulca belirlenecek diğer yatırımcılar
Fon katılma paylarının halka arz tarihi itibariyle en az 1 milyon TL tutarında Türk ve/veya
yabancı para ve sermaye piyasası aracına sahip olan gerçek ve tüzel kişilerdir.
3. Yatırım Amacı ve Politikası
Serbest yatırım fonları diğer yatırım fonlarından farklı olarak herhangi bir karşılaştırma
ölçütü kullanmadan ve piyasa getirisinden bağımsız olarak mutlak getiri sağlamayı
amaçlayan yatırım stratejileri uygulamakta olup, bu amaca uygun olarak başta türev
araçlar olmak üzere çeşitli yatırım araçları kullanmaktadırlar.
Bu nedenle Kurulca,
Serbest Yatırım Fonları, diğer yatırım fonları için geçerli olan içtüzük sınırlamalarından
muaf tutulmuş,
Yatırım stratejisi ve limitlerinin fon içtüzüğünde serbestçe belirlenmesi öngörülmüştür.
Açığa satış, kredili menkul kıymet, kaldıraç ve türev araç kullanımı gibi daha karmaşık
portföy yönetim tekniklerini içtüzüklerinde yer alacak strateji ve limitler çerçevesinde
kullanabilmelerine olanak tanınmıştır.
11. Average household sector holdings of assets
managed by institutional investors (including
insurance and pension reserves and mutual fund
shares) rose from 36% to 44% of total financial assets
between 1995 and 2005.
Insurance companies and pension funds are the
largest institutional investors in terms of financial
assets. In 2005, their total assets amounted to USD
30 trillion, almost double those held by mutual
funds. Insurance companies are in aggregate
somewhat larger than pension funds, holding assets
of USD 17 trillion, compared with USD 13 trillion for
pension funds.
12. A pension fund is any plan, fund, or scheme which provides retirement
income.
Pension funds are important shareholders of listed and private
companies. They are especially important to the stock market where
large institutional investors dominate. The largest 300 pension funds
collectively hold about $6 trillion in assets. In January 2008, The
Economist reported that Morgan Stanley estimates that pension
funds worldwide hold over US$20 trillion in assets, the largest for any
category of investor ahead of mutual funds, insurance companies,
currency reserves, sovereign wealth funds, hedge funds, or private
equity. Although the (Japan) Government Pension Investment Fund
(GPIF) lost 0.25 percent, in the year ended March 31, 2011 GPIF was
still the world's largest public pension fund which oversees 114 trillion
Yen ($1.5 trillion).
13. In countries with well developed private corporate
pension schemes (Australia, Canada, the
Netherlands, Switzerland, the United Kingdom and
the United States), pension funds are generally (apart
from in the United Kingdom) the dominant
institutional investors, and together they represent
70% of total pension assets in 2005.
In contrast, in Japan, Korea and most euro area
countries, insurance companies dominate. This is
particularly the case in France and Germany, where
life insurance policies have been the main form of
retirement savings and private pension funds are
relatively new or underdeveloped
14. TIAA-CREF and CalPERS are the two largest institutional investors in
US and are leading good corporate governance advocates. TIAA
(Teachers Insurance and Annuity Association of America, a New
York-based life insurance company), and CREF (College
Retirement Equities Fund, an open-end investment company
registered with the SEC), have together $259 billion assets under
management.
The investment portfolio market value of CalPERS, The California
Public Employees’ Retirement System, was $167 billion as of 2006.
CalPERS has made a decision to shift overseas allocation from 12
to 20 per cent of its assets to diversify and to take advantage of high
potential growth in overseas markets. In November 2001, CalPERS
allocated $1.7 billion of its investments specifically to pursue “active
corporate governance strategies in European and Japanese
markets”.
15. Press Release February 18, 2004
Contact:Brad Pacheco/Pat Macht
Office of Public Affairs
CalPERS Announces 2004 Emerging Markets Equity Policy
SACRAMENTO, CA - The California Public Employees’ Retirement
System’s (CalPERS) Board of Administration has accepted an
annual report on its emerging markets investment policy that will
slightly change the way the pension fund invests in stocks around
the world.
Based on the report, CalPERS will give Argentina, Peru and Turkey -
markets that fell below CalPERS required score - one year to
improve. CalPERS Board deferred for 30 days a decision to divest
in the Philippines.
16. The good news is that generally countries’ scores have improved over
the two year period we have had this policy. We remain optimistic
that over time we will continue to see more countries meeting our
threshold,” said Rob Feckner, CalPERS Investment Committee
Chair. “And our door remains open to discussing how more
countries can improve their markets to better support institutional
investment.”
CalPERS decides which emerging equity markets it will invest in
based on a report prepared by Santa Monica, California-based
Wilshire Associates who evaluates markets on economic factors
such as market liquidity and volatility, as well as political stability,
financial transparency and labor standards.
Argentina, Brazil, Chile, Czech Republic, Hungary, Israel, Jordan,
Malaysia, Mexico, Peru, Poland, South Africa, South Korea, Taiwan,
and Turkey will remain on CalPERS permissible markets
investment list
17. Malaysia was moved into the investable universe because of
improvements made in that country.
Investments in the following equity markets will continue to be banned:
India, Morocco, Philippines, Sri Lanka, Thailand, Colombia, China,
Egypt, Pakistan, Russia, Venezuela and Indonesia.
The review showed that Argentina, Turkey and Peru, who were
on the permissible list last year failed to make the cut. Under
CalPERS current policy, the countries will be given one year to
improve – a time period CalPERS refers to as the “cure
period.”
The Philippines, which was placed in the cure period after last year’s
review, improved slightly but not enough to reach CalPERS
standards.
18. Country and Market Macro-Factors
Country Market
Political Stability Market Liquidity and
Volatility
Transparency Market Regulation/Legal
System/Investor Protection
Productive Labor Practices Capital Market Openness
Settlement Proficiency/
Transaction Costs
19. Separate Country Factor and Market Factor Ranks
Country Factor Ranks Market Factor Ranks
1 Hungary 1 Chile
2 Czech Republic 2 Pakistan
3 Chile 3 South Korea
4 Poland 4 Israel
5 South Korea 5 Brazil
6 Taiwan 6 Hungary
7 Israel 7 Philippines
8 South Africa 8 Taiwan
9 Mexico 9 Thailand
10 Argentina 10 Poland
11 Philippines 11 South Africa
12 Brazil 12 Indonesia
13 Turkey 13 Czech Republic
14 Malaysia 14 Mexico
15 15 Jordan 15 Peru
16 16 India 16 India
17 Sri Lanka 17 Jordan
18 Peru 18 Egypt
19 Thailand 19 Morocco
20 Morocco 20 Russia
21 Indonesia 21 Turkey
22 Colombia 22 Malaysia
23 Russia 23 China
24 Egypt 24 Colombia
25 Venezuela 25 Sri Lanka
26 China 26 Argentina
27 Pakistan 27 Venezuela
21. CalPERS has approximately $2.6 billion currently invested
in the emerging markets, including $67 million in the
Philippines.
Wilshire Associate’s full report on the emerging
markets can be found in CalPERS press room on its
web site at www.calpers.ca.gov.
22. 2008 Corporate Governance Focus List
CalPERS named five underperforming companies in our
annual Focus List in March 2008. You can find out more
about this action and the five companies by choosing
one of the options below
Standard Pacific Corporation (SPF)
La-Z-Boy (LZB)
Invacare Corporation (IVC)
Hilb Rogal & Hobbs Company (HRH)
Cheesecake Factory Incorporated (CAKE)
23. Investment companies - such as mutual funds, investment
trusts, hedge funds and private equity funds - pool assets for
investment purposes. Forexample;
Deutche Asset Management (DeAM), a member of Deutche Bank
Group, portrays itself as an activist shareholder which tries to take a
long-term view. DeAM, with clients from over 60 countries around
the world, and close to €630 billion of funds under management, is
considering launching a corporate governance fund.
A report from the independent research house, Matrix Services,
quoted in the Financial Times, Fund Management of 19 January
2004, says that the research house’s funds under management in
China are predicted to increase ten-fold by 2010 to $1,600
billion, as market reforms unleash a period of extraordinary growth
for the Chinese domestic fund management industry
24. Total Financial Assets of Institutional Investors
Insurance Companies & Pension Funds Mutual Funds
Countries Total Total Insurers Pensions
1995 2005 1995 2005 1995 2005 1995 2005 1996 2005
Australia 321 1.507 273 807 128 241 146 566 48 700
Canada 556 1.432 402 941 172 391 230 550 155 491
Euro Area (4) na 10.165 na 5.858 1.871 4.664 na 1.194 1.378 4.307
Belgium 114 344 85 226 76 212 9 14 29 118
France 1.176 3.008 642 1.646 642 1.614 0 32 534 1.363
Germany 1.057 2.152 919 1.856 779 1.573 140 283 138 297
Italy na 1.007 na 557 120 528 na 29 130 451
Luxemburg 346 1.689 8 53 8 53 na na 338 1.636
Netherland 562 1.282 497 1.156 162 407 335 749 65 126
Spain 246 682 102 365 84 278 18 87 144 317
Japan 4.150 4.710 3.729 4.240 2.999 3.243 731 997 420 470
Korea (5) na 621 138 422 103 272 35 150 na 199
Mexico na 132 na 84 na 21 na 63 na 47
Singapore (6) 226 443 95 132 21 52 74 80 131 311
Sweden na 506 90 387 na 268 90 118 35 119
Switzerland (7) na 681 na 565 na 227 na 338 48 117
UK (5) 1.759 4.014 1.558 3.467 798 1.979 760 1.487 201 547
US 10.546 21.811 7.020 12.906 2.804 5.601 4.216 7.305 3.526 8.905
Total 46.021 29.810 16.960 12.848 16.214
25. Source: BIS 2007
2) In billions of US dollars.
3) For the Netherlands and United Kingdom, individual insurance
companies and pension fund data are from different sources and
hence do not add up to total insurance and pensions.
4) Mutual fund data are from the Investment Company Institute as the
definition of mutual fund data varies across national financial
accounts. Funds of funds are not included except for France, Italy
and Luxembourg after 2003.
5) Including Belgium, France, Germany, Italy, Luxembourg, the
Netherlands and Spain; data are for 1995 and 2004.
6) Data for Korea and the United Kingdom are for 2004.
7) Data for Singapore are for 2000 and 2005 respectively.
8) Data for Switzerland are for 1999 and 2003 respectively.
Sources: Investment Company Institute
(http://www.ici.org/stats/mf/index.html); national sources
26.
27. SWFs are typically created when governments have
budgetary surpluses and have little or no international
debt. This excess liquidity is not always possible or
desirable to hold as money or to channel it into
consumption immediately. This is especially the case
when a nation depends on raw material exports like oil,
copper or diamonds. To reduce the volatility of
government revenues, counter the boom-bust cycles'
adverse effect on government spending and the national
economy or build up savings for future generations,
SWFs may be created. One example of such a fund is
The Government Pension Fund of Norway.
28. The first SWF was the Kuwait Investment Board, a
commodity SWF created in 1953 from oil revenues
before Kuwait even gained independence from Great
Britain. According to the Sovereign Wealth Fund
Institute, Kuwait's fund is now worth approximately $250
billion.
Another of the first registered SWF is the Kiribati
Revenue Equalisation Reserve Fund. Created in 1956
when the British administration of the Gilbert Islands in
Micronesia put a levy on the export of phosphates (bird
manure) used in fertilizer, the fund has since then
grown to $520m
29. A SWF is “a government investment vehicle which
is funded by foreign exchange assets, and which
manages these assets separately from official
reserves (Morgan Stanley, Global Economic Forum 26 Oct.
2007)
2. Sovereign;
2. High foreign currency exposure;
3. No explicit liabilities;
4. High risk tolerance;
5. Long investment horizon
30.
31. sovereign-wealth funds make up only 2% of the
world's $165 trillion-worth of traded securities
sovereign-wealth funds will be worth $10 trillion by
2012, and$12 trillion for 2015
Merrill Lynch and Citigroup became the latest to
get the sovereign-wealth treatment, picking up a
further $6.6 billion and $14.5 billion respectively,
much of it from governments in Asia and the
Middle East (Economist 17 Jan 2008)
32. Cross –listing –ADR’s
Cross listing of shares is when a firm lists its equity shares on
one or more foreign stock exchange in addition to its domestic
exchange. Examples include:
•American Deposit Receipts (ADR),
•European Depositary Receipts (EDR),
•International Depositary Receipt (IDR) and
•Global Registered Shares (GRS).
Listing in US – SEC & SOX requirements
When companies list on U.S. exchanges, they have to follow the
stock exchange and Securities and Exchange Commission
(SEC) requirements on disclosure. Although there are many
disclosure exemptions for foreign companies from the domestic
rules, the level of disclosure required is generally high.
33. American Depository Receipts
Because there can be problems in dealing in unfamiliar foreign
markets, Depositary Receipts were devised as a method of
trading international securities (equity or debt) within the U.S.
This involves depositing the ordinary securities from the
foreign market with a bank (called the depositary), who will
then issue certificates in the U.S. that represent (and are
backed by) the deposited securities.
These certificates are freely traded and are commonly called
American Depositary Receipts (or Depositary Receipts for
short, or sometimes Global Depositary Receipts for marketing
purposes).
34. American Depository Receipts
The Types of ADRs
II.Sponsored ADRs
i. Level 1
ii. Level 2
iii. Level 3
iv. Rule 144A ADR programme
•Unsponsored ADRs
If anybody buys some shares in a company and then issues
Depositary Receipts representing those shares - without
consulting, or acting with the accord, of the company, then
these are termed Unsponsored Depositary Receipts, and in the
early days of the ADR market they were quite common.
35. American Depository Receipts
Sponsored Level 1:
This is the simplest method for foreign companies to issue
tradable securities in the U.S. markets.
The ADRs are not listed, and are traded over-the-counter
(OTC).
They do not have to adapt any reporting procedures to
comply with U.S. Generally Accepted Accounting Principles
(GAAP) or Securities and Exchange Commission (SEC)
disclosure.
36. American Depository Receipts –Over the
Counter
Over-the-counter (OTC) or off-exchange trading is to trade financial
instruments such as stocks, bonds, commodities or derivatives directly
between two parties. It is contrasted with exchange trading, which occurs via
facilities constructed for the purpose of trading (i.e., exchanges), such as
futures exchanges or stock exchanges
For such securities, broker/dealers negotiate directly with one another over
computer networks and by phone, and their activities are monitored by the
NASD (National Association of Security Dealers –merged with NYSE in
2007). OTC stocks are usually very risky since they are the stocks that are
not considered large or stable enough to trade on a major exchange. They
also tend to trade infrequently, making the bid-ask spread larger. Also,
research about these stocks is more difficult to obtain.
37. American Depository Receipts
Sponsored Level 2 (listed)
Level 2 depositary receipt programs are more complicated for a
foreign company. When a foreign company wants to set up a
Level 2 program,
It must file a registration statement with the SEC and is under
SEC regulation.
In their filings, the company is required to follow GAAP
standards.
The advantage that the company has by upgrading their
program to Level 2 is that the shares can be listed on a U.S. stock
exchange. These exchanges include the New York Stock
Exchange (NYSE), NASDAQ, and the American Stock
Exchange (AMEX). While listed on these exchanges, the
company must meet the exchange’s listing requirements. If it fails
to do so, it will be delisted and forced to downgrade its ADR
program.
38. American Depository Receipts
Sponsored Level 3 (offering)
Level 3 depositary receipt program is the highest level a
foreign company can have. Because of this distinction, the
company is required to adhere to stricter rules that are similar to
those followed by U.S. companies. Setting up a Level 3 program
means that;
the foreign company is not only taking some of its shares from
its home market and depositing them to be traded in the U.S.;
it is actually issuing shares to raise capital.
The company must adhere to GAAP standards.
Any material information given to shareholders in the home
market, must be filed with the SEC
Foreign companies with Level 3 programs will often issue
materials that are more informative and are more accommodating
to their U.S. shareholders because they rely on them for capital.
39. American Depository Receipts
Restricted programs
2.144-A
Some foreign companies will set up an ADR program under SEC
Rule 144(a). This provision makes the issuance of shares a
private placement. Shares of companies registered under Rule
144-A are restricted stock and may only be issued to or traded by
Qualified Institutional Buyers (QIBs).
No regular shareholders will have anything to do with these
shares and most are held exclusively through the Depository
Trust & Clearing Corporation, so the public often has very little
information on these companies. 144-A shares may be issued
alongside of a Level 1 program
40. American Depository Receipts
Restricted programs
•Regulation S
The other way to restrict the trading of depositary shares is to
issue them under the terms of SEC Regulation S.
This regulation means that the shares are not and will not be
registered with any United States securities regulation
authority.
Regulation S shares cannot be held or traded by any “U.S.
Person” as defined by SEC Regulation S rules.
The shares are registered and issued to offshore, non-US
residents. Regulation S shares can be merged into a Level 1
program after the restriction period has expired
41. American Depository Receipts
The ADR Market
There are now over 1,600 ADRs from over 50
countries; and the majority of these are OTC (Level 1
type). In many cases the ADRs may constitute 5-15%
of the total shareholder base for a company.
The depositaries for the ADRs tend to be concentrated
among a very few banks; the most active of which is
the Bank Of New York, which acts as a depositary for
approximately 60% of all issues.
