CalSTRS, CalPERS Show No Love for the Murdochs in News Corp. Vote

Both mega-funds are getting active, backing a shareholder proposal to split Rupert Murdoch's Chairman/CEO role into two, and CalSTRS is pushing to oust him from both.

(October 15, 2012) – The United States’ two largest public pension funds have refused to back Rupert, James, and Lachan Murdoch’s reelection to News Corporation’s board of directors.

The $152.5 billion California State Teachers’ Retirement System (CalSTRS) voted by proxy against all fourteen directors up for reelection, including Rupert, James, and Lachlan Murdoch, despite all of them being recommended by management. CalSTRS also voted ‘nay’ to the executive compensation package, while supporting a shareholder proposal for an independent board chairman. Rupert Murdoch is currently both the chairman and chief executive officer of the media conglomerate, which has a $57.7 billion market capitalization.

Taking a slightly more moderate position, the $243 billion California Public Employees’ Retirement System (CalPERS) chose to withhold its proxy vote on key members’ reelection to News Corps’ board of directors.

“CalPERS is withholding its vote from non-independent director nominees Rupert Murdoch, James Murdoch, and Lachlan Murdoch,” the fund explained in its published proxy-voting explanation. “There is concern with the dual class voting structure at the company and we believe independent board leadership must be emphasized to ensure the protection of minority shareowner interests. CalPERS expects the board to continue efforts in rejuvenating the News Corporation board with new independent directors.”

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As with CalSTRS, CalPERS stood against the compensation package, citing “concerns that the company has not adequately linked pay with performance.” Likewise, the pension system backed the proposition for an independent board chairman. “CalPERS believes if the Chairman is not the CEO the board may be able to exercise stronger oversight of management,” the fund said.

Others in the industry are taking an even stronger stand against the octogenarian News Corp. boss and his board. Ian Greenwood, chairman of the United Kingdom’s Local Authority Pension Fund Forum (LAPPFF), has flown to Los Angeles to speak in support of an independent chair at the company’s annual general meeting. The in-person vote will take place October 16, 2012.

In response to the LAPPFF and others’ call to split News Corp’s chairman and CEO roles, the company stated that “an Independent Chair is not warranted since:”

1) The company has strong governance practices;

2) The lack of conclusive data on the impact of independent board leadership on stockholder value;

3) The current board leadership structure is flexible and strong and would be weakened with a separate Chair and CEO;

4) The board is independent and led by an Independent Lead Director.

News Corp. could not be reached for further comment.

While smaller hedge funds are the long-term winners when it comes to performance, large funds outperform small funds in tough times, a new analysis shows.

(October 15, 2012) — Small hedge funds have a leg up compared to their larger rivals when it comes to long-term performance, according to new data from PerTrac, a financial software provider.

During down markets, however, the outlook for small funds is not as rosy.

According to PerTrac’s sixth annual report, “Impact of Size and Age on Hedge Fund Performance,” smaller hedge funds have outperformed larger hedge funds on a risk-adjusted basis over the past 15 years.

But during the financial crisis of 2008, large hedge funds returned an average -14.1%; midsize funds, -16.04%; and small funds, -17.03%. In 2009, midsize funds outperformed smaller and larger funds with an average return of 22.61%, compared to 21.5% and 18.72%, respectively. In 2011, large hedge funds returned an average -2.63%, compared to -2.78% for small funds and -2.95% for midsize funds.

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“When you look at small funds, they’re generally younger. They’re trying to build up track records and they’re more likely to take risk,” Jed Alpert, PerTrac’s managing director of global marketing, told aiCIO. “We see that smaller hedge funds also tend to have higher volatility.”

PerTrac’s report added: “The 2011 findings suggest that investors with a lower volatility tolerance and seeking to protect their wealth should examine funds with over $500 million in asset under management, since the average large fund has exhibited lower annualized deviation figures compared to the average small fund…Investors with a higher volatility appetite and seeking to maximize their returns should examine funds with less than $100 million in assets under management, since the average small fund has outperformed the average mid-size fund and average large fund in 13 out of the last 16 years.”

Explaining the reason for superior performance among large hedge funds during down markets, Simon Lack, author of the “Hedge Fund Mirage,” commented that such funds often have a relatively larger amount of their investments in safer assets and can negotiate better terms due to their clout. “Because of their size and influence, larger funds may have better liquidity terms compared to smaller hedge funds, so they’re less likely to be forced to sell during falling markets,” Lack said.

Questions circulating around how assets under management influence performance is not unique to the hedge fund industry. In December 2011, aiCIO questioned in a magazine article whether the focus—and sometimes obsession—on assets under management when judging and predicting performance often erroneous thinking, reflect a breach in logic.