There is much evidence to suggest a basic asymmetry between the risks to underwriters and subunderwriters and the fees that are paid to each for the taking of the risks associated with rights issues. The rewards available to advisors and lead underwriters are disproportionate to those available to other providers of risk capital. It would also appear that the general increase in fees associated with rights issues is imperfectly correlated with the risks associated with these transactions and therefore degrades shareholder value.
As an institutional investor which receives no financial benefit from sub-underwriting, Standard Life Investments would support a return of competitive tension to the costs arising from the advising and underwriting of secondary offerings of equity. We would welcome a return of the tendering method of underwriting. We would also urge corporate buyers of investment banking services to consider more critically the economies that they are achieving within the present system and to examine ways that the associated costs can be minimised for shareholders.
One odd thing to note - the letter is addressed to the IMA. I presume this is because the IIC doesn't have a separate life of its own yet.