A minority shareholder of Macquarie Korea Infrastructure Fund (MKIF) is pushing for the eviction of Macquarie Korea Asset Management (MKAM), the project management entity of the fund, making an issue of its high labor costs.
According to investment banking (IB) industry sources on June 26, Platform Partners Asset Management Co. (PPAM), which owns a 4.9 percent stake in MKIF, sent a letter to the fund’s board of directors, asking to hold an extraordinary general meeting in order to either change the MKIF management firm from MKAM to Koramco Asset Management or cut its wage costs by a tenth.
MKAM currently manages MKIF, which is listed on Korea Exchange and manages 12 infrastructure projects constructed with private-sector investment. Its assets include Incheon International Airport Expressway, Seoul-Chuncheon Expressway, Yongin-Seoul Expressway and Incheon Grand Bridge.
Established in 2015, Platform Partners is a small and mid-size infrastructure management firm with assets worth 500 billion won (US$447.23 million).
Platform Partners argues that MKIF pays fees to MKAM and wastes its money on unnecessary expenses by paying additional fees to Macquarie Infrastructure and Real Assets (MIRA), the actual manager of MKIF. MIRA operates a portfolio entity for each of the infrastructure project it manages.
Platform Partners argues that MKIF made an unfair contract with MKAM and has paid it a total of 535.3 billion won (US$478.8 million) in dividends since 2006, which accounts for 32.1 percent of the total dividend payout.
The 12 private sector-funded infrastructure projects run by MKIF had terms favorable to investors as they were promoted at a time when the Korean government sought to attract private sector investment in infrastructure construction and when interest rates were high.
MKAM is also at the heart of the debate as it runs a separate portfolio entity to manage each of the 12 projects. Platform Partners stressed that investors in MKIF had to pay a total of 16.8 billion won (US$15.03 million) in wages to 110 employees of the 12 portfolio entities, excluding the wages paid to the employees of the asset management firm. Some of employees of MKAM moved to the separate subsidiaries and the rate of wage increase for the separate subsidiaries reached 49 percent over the past five years, leading to a burden on investors.
In response to these assertions, MKAM said that the average investment earnings rate has come to 9.2 percent and the average dividend rate has reached 5 percent to 7 percent after 2006, countering the argument that high pay eroded profits. The company also said that its pay is relatively higher than other domestic funds but it is a management company specializing in infrastructure, which cannot be seen in the nation, and has more work to do to run infra projects, including reduction of charges and securement of liquidity, than other management firms. It added that it has separate subsidiaries for each private capital project according to the domestic laws and its labor costs are about 700 million won (US$62,612) per person, which is close to the industry average.
Platform Partners needs to enlist the support of other investors to have MKIF accommodate its demands. But major MKIF investors, including the Government Employees Pension Service, Teachers Pension, Public Officials Benefit Association and Korea Post, UK-based investor Newton Investment Management Limited, Hanwha General Insurance Co. and Shinyoung Asset Management Co., said that they were not aware of Platform Partner’s claims.