Asset managers failing to optimise corporate actions
03 December 2018 London
Image: Shutterstock
Asset managers are failing to optimise corporate actions decisions on a massive scale, according to a whitepaper released by Greenberg Traurig, LLP.
The whitepaper also highlights the costs to beneficial owners of suboptimal decisions in corporate actions.
It also brings attention to the regulatory and legal risks asset managers face for systematically failing to optimise corporate actions decisions.
Greenberg Traurig analysed losses by investors, including some of the largest asset managers in a dataset comprised of all scrip dividends globally between 2011 and 2017.
Greenberg found average aggregate losses to beneficial owners from scrip dividends alone total $1.3 billion annually—and between 2011 and 2017, approximately $8.9 billion were missed.
Findings also conclude that in 38 percent of scrip dividends, the majority of shares were elected in a suboptimal manner.
Aggregate losses from undersubscribed rights offerings exceed $100 million per year and losses are compounding each day.
As of the end of 2016, unfunded liabilities of private-sector defined benefit pension plans in the US alone stood at $0.5 trillion.
The approximately 10-basis points per year improvement that asset managers would derive from recovering missed value from scrip dividends alone, would add 1 percent to the return of portfolios over seven years.
The whitepaper was commissioned by Scorpeo, a company specialising in capturing missed corporate actions value.
Robert Frenchman of Greenberg Traurig said: “It’s now only a matter of time before regulators commence investigations and enforcement cases and civil plaintiffs commence lawsuits against asset managers that systematically fail to maximise the value of corporate action determinations.”
He added: “We think the courts are especially likely to uphold fiduciary obligations, where many are knowingly failing to recover the full value of corporate action events that are the undisputed property of their investors.”
Jonny Ruck, CEO of Scorpeo: “The problem the industry is facing is more daunting than many asset managers realise and the consequences of ignoring it are massive. Whether firms decide to leverage their own internal resources or work with a corporate actions technology provider to put a system in place, asset managers need to act now.”
He added: “With the tools, technology and processes that exist today, there’s no reason investor beneficiaries should be incurring losses of this magnitude. As an industry, we need to systematically improve the way we optimise corporate actions—these are critical functions that can no longer be neglected.”
The whitepaper also highlights the costs to beneficial owners of suboptimal decisions in corporate actions.
It also brings attention to the regulatory and legal risks asset managers face for systematically failing to optimise corporate actions decisions.
Greenberg Traurig analysed losses by investors, including some of the largest asset managers in a dataset comprised of all scrip dividends globally between 2011 and 2017.
Greenberg found average aggregate losses to beneficial owners from scrip dividends alone total $1.3 billion annually—and between 2011 and 2017, approximately $8.9 billion were missed.
Findings also conclude that in 38 percent of scrip dividends, the majority of shares were elected in a suboptimal manner.
Aggregate losses from undersubscribed rights offerings exceed $100 million per year and losses are compounding each day.
As of the end of 2016, unfunded liabilities of private-sector defined benefit pension plans in the US alone stood at $0.5 trillion.
The approximately 10-basis points per year improvement that asset managers would derive from recovering missed value from scrip dividends alone, would add 1 percent to the return of portfolios over seven years.
The whitepaper was commissioned by Scorpeo, a company specialising in capturing missed corporate actions value.
Robert Frenchman of Greenberg Traurig said: “It’s now only a matter of time before regulators commence investigations and enforcement cases and civil plaintiffs commence lawsuits against asset managers that systematically fail to maximise the value of corporate action determinations.”
He added: “We think the courts are especially likely to uphold fiduciary obligations, where many are knowingly failing to recover the full value of corporate action events that are the undisputed property of their investors.”
Jonny Ruck, CEO of Scorpeo: “The problem the industry is facing is more daunting than many asset managers realise and the consequences of ignoring it are massive. Whether firms decide to leverage their own internal resources or work with a corporate actions technology provider to put a system in place, asset managers need to act now.”
He added: “With the tools, technology and processes that exist today, there’s no reason investor beneficiaries should be incurring losses of this magnitude. As an industry, we need to systematically improve the way we optimise corporate actions—these are critical functions that can no longer be neglected.”
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