Temasek-backed CitySpring managers slammed for fees

May 20, 2007
Singapore Democrats

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Jamie Lee
Reuters
19 May 07

An infrastructure fund backed by Singapore state investor Temasek Holdings [TEM.UL] has been slammed for paying its managers such high fees that the fund itself turned in a much bigger-than-expected loss.

CitySpring Infrastructure Trust’s managers were paid a total of S$63 million ($42 million) in management fees.

The infrastructure trust — which has just two assets in its portfolio — made a net loss of S$56.1 million, or more than 16 times the S$3.4 million loss that it forecast at the time of its IPO in January.

David Gerald, chief executive of the Securities Investors Association of Singapore (SIAS), told Reuters on Friday that SIAS had received numerous complaints from unit holders, some of whom described the management fees as “ridiculous” and “terrible”.

“We are disturbed by the mind-boggling management fees which are not equitable to unit holders,” Gerald said.

“We’ve been approached by investors to look into this. We are studying CitySpring’s performance fee structure, and will come out with a recommendation to unit holders early next week.”

Cityspring was listed by Temasek, which is still the biggest single investor in the fund.
The managers have been paid their fees in CitySpring units, rather than cash, which CitySpring Chief Executive Fai Au Yeung said would allow them “to share and suffer in the ups and downs as unitholders.”

Hedge fund and other managers are often paid performance fees, providing an incentive for them to achieve high investment returns.

CitySpring has issued a total of about 40 million units at S$1.50 to pay for the management fees.

Tong Yew Heng, chief financial officer, told Reuters that while there are no restrictions on selling the units, “we have no intention of selling, we are clearly aligned with the trust.” The management fee consists of a base fee of S$3.5 million a year, and a performance fee which depends on the extent to which the fund beats the MSCI Asia Pacific (ex-Japan) Utilities Index, CitySpring said in its initial public offering prospectus.

If CitySpring units beat the index during the quarter, the managers are entitled to a performance fee equivalent to 20 percent of the difference.

CitySpring said it outperformed the index by 74.3 percent in the period between its initial public offering and the end of the quarter.

By comparison, managers of Singapore-listed Macquarie International Infrastructure Fund Ltd. – which was listed at the end of May 2005 and which also has utility assets – have a similar performance fee arrangement.

They earned performance fees of S$28.1 million for the period April 1 to June 30, 2005, after the fund beat the benchmark annual return by 17.6 percent, according to the fund’s financial statement.

But in this case, the fund reported net income of S$43.6 million for the two months, beating its forecast of S$14.7 million.

Macquarie Fund currently owns 10 assets in its portfolio