Examination of Witnesses (Questions 100-119)
DEPARTMENT FOR
INTERNATIONAL DEVELOPMENT
AND CDC GROUP
15 DECEMBER 2008
Q100 Dr Pugh: Going back to this
£250 million figure that you have put on the record, could
you send us a note showing how you have arrived at that figure
of £250 million, what it is based on and who are the fund
managers who particularly enabled you to construct that figure?
Mr Laing: Yes, I will do that.[3]
Q101 Dr Pugh: I have one final question
to the Permanent Secretary. It does say in the NAO Report—which
slightly astonished me with these huge, huge sums of money being
dispersed—that there is only 1.5 persons working in the
department overseeing this. Why?
Ms Shafik: The 1.5 is parts of
many people's time. It is a team of many people with different
skill sets but we also rely quite heavily on a shareholder executive.
Q102 Dr Pugh: So this 1.5 is made
up of several bits of people, is it?
Ms Shafik: It is part of Mark's
time; it is part of other people's time. In addition to that—we
have increased it recently because we have been reviewing the
government's framework—we also rely very heavily on the
Shareholder Executive who have extensive experience of people's
work on corporate governance in many companies for the government.
When we have needed it we have got in external advisors. In the
Civil Service we do not have a lot of people who know about remuneration
in the private equity fund of funds industry; it is not a skill
that you keep on the payroll and when you need it you get specialist
helpers.
Dr Pugh: So it is 1.5 plus a lot of helpers.
Thank you.
Q103 Mr Bacon: Mr Laing, you mentioned
that there were 600 companies paying some £250 million in
tax. Is that across the portfolio, the 250 companies are all over
the world.
Mr Laing: That is correct.
Q104 Mr Bacon: Could you send us
a list of them showing how much tax each has paid?
Mr Laing: What we agreed to do
was to send a note of how we derived that £250 million.
Q105 Mr Bacon: I would like to see
a list of all 600 companies.
Mr Laing: The reason I am hesitating
is that some of our fund managers were contractually bound not
to disclose the names of every company.
Q106 Mr Bacon: They are contractually
bound not to disclose the names of the firms they have invested
in.
Mr Laing: Yes, for commercial
reasons. We can send you a list of some them.
Q107 Mr Bacon: Perhaps you can send
us what you can.[4]
Sir Malcolm Williamson: There
are some companies in our portfolio that do not pay tax.
Q108 Mr Bacon: I am interested in
the ones that pay tax so perhaps you can send us what you can.
Can I ask you about the fee structure? On page 13 at figure six
it talks about this element of carry which it describes as a "pre-agreed
percentage of all profits above a fixed threshold. Total profits
taken by Fund Managers in 2005-07 equated to 9% of the total profits
realised over the period." What happened in the earlier years
prior to 2005?
Mr Laing: Carry is a profit share
of a fund.
Q109 Mr Bacon: I understand what
it says; I am just asking what happened prior to 2005.
Mr Laing: Up until that time the
fund had not returned all its capital to us so therefore the fund
manager was not due any carry.
Q110 Mr Bacon: Could you tell us—if
not now then perhaps in a note—what were the total profits
taken by fund managers in the period 2005-07?
Mr Laing: The three numbers in
figure six add up to £57.2 million.
Q111 Mr Bacon: What do I add together
to get that?
Mr Laing: Table six, line five
the 9.1, the 23.2 and the 24.9.
Q112 Mr Bacon: Those three come to
57.2. That is the total profit taken by fund managers in the period.
Mr Laing: In cash for that time,
yes.
Q113 Mr Bacon: That number, 57.2,
equates to 9% of the profits, is that correct?
Mr Laing: Yes.
Q114 Mr Bacon: So the fund management
fees in line two which were 34.1 million last year, that is separate,
is that right?
Mr Laing: That is correct.
Q115 Mr Bacon: So the fund managers
get this 57 million, as you have just described it, but they also
get the 34 plus the 26 plus the 25 as well.
Mr Laing: They get their fee and
then they get their profit share.
Q116 Mr Bacon: Thank you, I just
wanted to understand that. Is it possible that you can send us
a schedule that reproduces this showing the total profits? Rather
than having to calculate what 9% must have been 9% of, you can
see the profit and then see the 9%.
Mr Laing: We can send you a schedule
which explains that, yes.[5]
Q117 Mr Bacon: Thank you. I would like
to ask about pay. This is on page 31. Ms Shafik, it describes
in paragraphs 5.14 and 5.15 the process of contact between DFID
and CDC. At 5.15 it says, "CDC advised DFID in writing each
year about its Remuneration Committee's proposals, but this document
did not detail the basis for those proposals". It goes on,
"CDC informed DFID that remuneration proposals complied with
the 2004 Framework: CDC interpreted the Framework as having evolved
under discussions each year; DFID believed CDC was confirming
compliance with the three-way comparator group." At the bottom
it says, "The National Audit Office concludes" (this,
I think, is a rather damning sentence) "that CDC should have
sought formal approval to depart from the tripartite comparator
group; while DFID should have drafted a more precise remuneration
policy". The reason this is relevant, of course, is because,
as we see on the right hand side there, Mr Laing's total remuneration
during this programme went from £383,000 up to £970,000.
Essentially they were able to rewrite their own ticket and you
at DFID were asleep on the job I think.
Ms Shafik: No, I do not think
that is the case. We acknowledged that the original remuneration
framework that DFID agreed with CDC was ambiguous about what would
happen if performance was exceptional. There were no caps beyond
a certain level. In fact the context again is relevant, it was
a context in which emerging markets were collapsing.
Q118 Mr Bacon: Which year are you
talking about?
Ms Shafik: On remuneration.
Q119 Mr Bacon: When you said that
emerging markets were collapsing which year were you talking about?
Ms Shafik: This was in the period
just prior to the restructuring so it was in 2001-03 when East
Asia had collapsed, Russia had collapsed, Argentina had defaulted,
the internet bubble had burst and after 9/11 every investor was
running away from risk. We did not think that we would have the
problem that performance would be exceptional and we did not anticipate
an exceptional performance situation.
3 Ev 24 Back
4
Ev 24 Back
5
Ev 28 Back
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