Alignment of interests in emerging markets
The “principal agent problem,” also known as the “agency problem,” has existed since the dawn of civilisation. There is a fundamental issue when the ‘agent’ is authorised to make decisions on behalf of the ‘principal’. In many cases, from shareholders (principals) vs. corporate managements (agents) to voters (principals) vs. politicians (agents), this problem persists. It can come in many forms and it leads to what economists call moral hazard or a conflict of interest.
As asset managers, we face the agency problem when allocating our clients’ capital. We have taken steps to ensure full transparency and strong alignment through co-investing with our clients, as well as appropriate incentive structures and a long-term mindset. We believe strong alignment is a very important mechanism in ensuring pain and success are mutually shared. When we invest in companies, we use this same mindset, looking for an alignment of interests with the management teams and owners of these businesses.
The Q2 2019 note also covers:
- An engagement update for the quarter – including a new section on Voting which highlights three case studies of voting activity
- A debrief on the findings from the team’s recent research visit to India
- A roundup of portfolio activity
Download the full note to read more about how the team tackles this issue