Examination of Witnesses (Questions 100
THURSDAY 11 JULY 2002
100. But your view of them was that they were
low risk and that is why you kept selling them.
(Mr Gilbert) No one has lost money yet. Most people
are still in their zeros so they have not lost any money yet.
They have not sold.
101. I am not sure that is the way the investors
will view losing 90 per cent of their assets
(Mr Gilbert) Then they are being naive, Mr Laws. We
all know that until we sell an investment we have not lost money
on that investment. You may think otherwise but
Mr Laws: I think most people will view
it otherwise. If you have lost 95 per cent of your assets
102. Maybe we should still be happy.
(Mr Currie) We have covered the risk profile on page
11 of the document submitted to you which tries to take forward
the attributes of zeros as an asset class and how it was being
written by various other investment managers at the time. We have
the data on redemption yields on zeros going back to July last
year and before that, and if the market had seen the risk in these
shares it would have priced them accordingly.
103. But you did not see it. You regarded these
assets as being low risk and on that basis you marketed them,
discussed them and sold them directly and indirectly to retail
investors who assumed they were low risk
(Mr Currie) A low risk share class.
104.And they have turned out not to be
at all. They have turned out to be extremely high risk given the
gearing and the cross-investment as well as the decline in the
(Mr Gilbert) There is a very good statistic at the
time. When we were marketing these as low risk, some could have
lost 11 per cent of their assets per annum over the remaining
time of the zeros for them still to pay out, so we were looking
at a situation where we could see that they could lose on some
zeros 11 per cent per annum, say, over seven years and still pay.
Now, obviously the markets have fallen further than we expected
and everyone else expected.
105. Can you tell us what steps were taken to
make clear to the holders of zeros that their security might be
compromised by the issuance of new debt?
(Mr Currie) I think we must distinguish between us
and the boards running the companies themselvesthat is
the first point. If there is any substantive change the boards
of directors write to the shareholders for shareholder approval;
shareholder democracy kicks in; people vote if there are going
to be any substantive changes to capital structures or reconstructions,
and that is done by the board. You can go to AGMs and EGMs and
you can vote against these thingsand actually we would
like more shareholders turning up because often shareholder apathy
is a bit of a problem. Boards meet and put out annual and interim
reports, we put out monthly fact sheetsinvestors are getting
information on the structure of the company all the time.
106. Actually I wanted to ask about investor
apathy because one of the individuals who wrote to us who lost
98 per cent of their investment was very upset about the position
earlier on in the year when, in May, the size of decline in her
asset base became evident and she said to us in a note that Aberdeen
was obliged under the Companies Act to convene an emergency general
meeting on 22 May. The stock market prepared invitations on 7
May but Aberdeen made an administrative error and forgot to invite
the investors. Is that correct?
(Mr Gilbert) That is nothing like the case.
(Mr Marshall) The fund you are referring to is our
High Income Trust and the position there is that all of the registered
holders of that fund are entitled to receive a notice of the meeting.
We have one registered holder on there which is the Aberdeen share
plan which contains within it a whole raft of other people, and
unfortunately they were not mailed. In fact, the position was
that the meeting was for information only and there were no votes
involved and we did
107. I think they would have liked to have known
what was going on.
(Mr Marshall) We offered everybody the opportunity
to attend a subsequent meeting, and that was available to them.
So they had the opportunity to put any issues and concerns to
the board quite shortly thereafter.
108. Why were those investors not told?
(Mr Marshall) It was administrative error. You have
one shareholding and the shareholding represents all of the subholders.
(Mr Gilbert) They were not obliged to be told but
we normally out of courtesy tell them. They were in the Share
Plan basically but, Mr Laws, I accept it was not acceptable practice
and it is not something we are proud of.
109. We are coming to the end, Mr Gilbert. Could
you tell us why your memorandum to the Committee did not include
information on the performance of your own trust? I am reminded
of that by a front page article in Business AM this morning
which indicates that Aberdeen Asset Management was forced to suspend
its shares in Aberdeen Media and Income and is in talks with its
bankers. Is that correct?
(Mr Gilbert) Yes.
110. So why did you not give us all of this
(Mr Currie) Which information?
111. On Aberdeen Media and Income.
(Mr Gilbert) I think it is in the performance monitor.
112. You have not given us this information.
(Mr Currie) In the monitor we supplied, which also
includes pages on the income shareholdings that you were asking
us about, each individual trust in the split capital market is
113. This is the memorandum you provided us
(Mr Gilbert) We also provided that. I am sorrywe
should have included it.
114. But you provided that after this meeting
started. It did not help any of us.
(Mr Gilbert) I do not think it was provided after
the meeting startedwell, I am sorry. I apologise, Chairman.
115. I quote from the Financial Times
of 17 May and Martin Dixon who is a respected financial commentator
and he says that you deserve no sympathy; you have given the sector
a bad name; you have tarnished the whole of the split capital
sector and the stain may have spread to the investment trust industry
as a whole. Do you agree with that?
(Mr Gilbert) No, I do not.
116. Why do you not agree with it?
(Mr Gilbert) Well, (a) there are 36 other fund managers
in the split capital sectorI know from reading the press
you might think there was only one but there are 35/36 othersand
(b) this has happened before. This happened in the 30s and in
the 70s so this is history repeating itself. I know that causes
general mirth, but that is the case: this is caused by a prolonged
bear market. Now we cannot ignore that.
117. A number of people have written to us,
Mr Laws mentioned someone and I had a letter from someone who
took out an ISA with you for £7,000, now worth £98,
and they are very angry, as you can imagine, and they have been
very rude about it, so I will be less rude and formulate a question
to you. They tell me that you are sophisticated snake oil salesmen.
Tell me what the answer to that question is so I can go back to
these people and reassure them that there is 100 per cent integrity
behind everything you have done?
(Mr Gilbert) There is 100 per cent integrity behind
everything we have done.
118. That is good because we have asked for
written information from you, and I hope that at a future date,
along with Mr Fishwick, we will reknew our acquaintance and take
this further. Thank you very much.
(Mr Gilbert) Thank you very much.
17 Note by Witness: Under the Companies Act
and UKLA Listing Rules, companies are obliged to obtain shareholder
approval for key constitutional or structural changes. Back