Hastings won't pay manager's fee in full

Hastings Diversified decided to defer part of a $54.1 million performance fee due to its manager, Hastings Funds Management (a Westpac unit). It paid $30.7 million in cash and postponed payment of the remaining portion until a later decision.

Hastings deferred the balance because it is awaiting the outcome of APA’s takeover offer. The company said it will decide whether to pay the remainder depending on whether the unit price rise that began when APA launched the bid is sustained and whether control of the company changes hands.

Hastings paid $30.7 million in cash out of the $54.1 million fee. The remaining $23.4 million was deferred to be decided later (the portion the company calculates became payable after APA launched its takeover offer).

Hastings Funds Management, a unit of Westpac, is the external manager of Hastings Diversified. It was the recipient of the performance fee — the multimillion-dollar payment that Hastings has partially paid and partially deferred while the APA takeover bid is being resolved.

Hastings Diversified’s units outperformed their relative benchmark in the December half. The group’s market value rose to $1.09 billion by the end of 2011, up from $876 million a year earlier. The company also said unitholders who participated in all rights issues and reinvested dividends would have achieved an annual 12.5% return since inception and a 34.25% return since the last performance fee was payable in mid‑2011.

APA highlighted that Hastings Diversified had paid more than $110 million in performance and management fees since listing in 2004, which it said was more than 30% of total distributions paid to unitholders in the same period. Broker Wilson HTM criticized the payment of performance fees, saying the share price outperformance is largely due to Hastings’ low‑beta defensive assets (about 80% pipelines and 20% cash) rather than manager skill.

The takeover bid coincided with a rise in Hastings Diversified’s unit price, which is a factor in Hastings’ decision to defer the remaining fee. On the day covered by the article, APA shares traded down about 1% to $4.47, while Hastings Diversified units slipped about 2% to $1.98.

Everyday investors should know that deferring the fee delays a large cash outflow until the takeover outcome and unit‑price sustainability are clearer. APA has argued cumulative fees have been substantial relative to distributions, while Hastings points to strong recent performance. The deferral means the final cash impact on unitholders will depend on whether control changes and whether the recent unit‑price gains hold up.