Investing for Development: the Department for International Development's oversight of CDC Group plc - Public Accounts Committee Contents

Examination of Witnesses (Questions 100-119)


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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