I am not bagging Glennon who should be admired for opportunistically taking advantage of CMI for their own advantage. I am merely pointing out the management agreement is excessively to Glennon's advantage. I disagree with you regarding the fact that they won't make much unless they perform. The Benchmark for the performance fee to be paid to them is RBA cash rate plus 2% for what is an ASX listed equities mandate. The average return for the All Ords accumulation index for any decent length of time (say since 1900) is around 11% p.a. The average cash rate for the same period is around 4%. The difference is very close to the generally accepted theoretical equity risk premium (CAPM definition) of about 6%p.a. Thus simplistically they can invest in ASX listed equities, underperform the average benchmark by 4% p.a. and still expect to have a 50% chance of receiving a performance fee. The fact that such a one sided management agreement was entered into indicates that Glennon were appointed not because CMI ran a competitive tender (an example of an LIC management agreement entered into after a competitive tender was one entered into by CYA a few years ago - management fee close to 0.10% p.a., no performance fee, no fixed term) but because of some kind of relationship between Glennon and those controlling CMI
No doubt they will say the fee structure is not too different to those of other LICs; the point though is that the fee structures of LICs tend to result in them trading at a discount to NTA eg Glennon's GC1. It can thus be clearly seen that the proposal is value destructive to CMI shareholders compared to the obvious alternative of paying the cash out as a special franked dividend and therefore shareholders (unless they are getting some other advantage) should vote against it
CMI Price at posting:
$1.15 Sentiment: Hold Disclosure: Held
