Hedge funds have right to criticise bad management

Date: Monday, August 28, 2006
Author: Londonstockexchange.com

Hedge funds have every right to criticise bad management in companies they invest in, according to an expert from F&C Partners.

The comments come in response to an "outburst" from Joop Wijn, the Dutch minister for the economy.

In a broadcast interview, Mr Wijn claimed that hedge funds behaved like "locusts" after some funds voiced an opinion that a supermarket group they had invested in should be restructured because shareholder value could be increased.

However, Francois Barthelemy, a partner at F&C Partners, said Mr Wijn's comments were "misguided" because it would be wrong for companies to ignore the demands of large shareholders, whether they are individual persons or hedge funds.

He explained: "The corporate structure of hedge funds means that they have the freedom to raise their voice in the face of incompetent management teams..."

"[It] can be argued that they do so primarily on behalf of people who invest their life savings in order to pay for their retirement, a better school for their grandchildren, or the holiday of a lifetime," he added.

Although some view hedge funds as mysterious and even sinister entities because they do not have to reveal their trading operations, Mr Barthelemy said hedge funds invest money largely on behalf of pension funds and investment companies.

In many ways, pensioners and savers can therefore be considered as the shareholders of companies into which hedge funds invest, he concluded.