The Link Reit's board and its chairman, Paul Cheng Ming-fun, are in an unenviable position between the proverbial rock and a hard place. They are facing increasingly aggressive protests by public-estate shopkeepers to halt rent increases. On the other side, they relented last month and appointed the representative of a British-based hedge fund as a non-executive director, who will no doubt demand greater returns, faster. That appointment was preceded by months of skirmishes between the board and British-based The Children's Investment Fund Management (TCI), which has accumulated an 18.35 per cent interest in the city's first and largest reit. The British hedge fund has reportedly tried to remove Mr Cheng for repeatedly ignoring its demands for board representation and a more aggressive investment strategy. Meanwhile, estate shopkeepers are calling for strikes to halt rent increases. On Monday, 58 shopkeepers from the Chung Fu market in Tin Shui Wai said they would join forces with other protesters - some 40 vendors in a Chai Wan estate market - to fight what they see as exploitation. Most of the Chung Fu protesters have had rent increases of 20 to 30 per cent imposed on them, and one meat store is facing a 50 per cent rise to HK$45,000 a month. Already, six Chung Fu shopkeepers have been taken to court for illegal occupation - because they are paying only their old rents. It's a fact of life that commercial rents have jumped phenomenally in recent years. The Link comprises 180 shopping centres and car parks on public housing estates formerly managed by the Housing Authority. It cannot call itself a publicly listed corporation answerable to shareholders without making its rents reflect market conditions. However, it has always been implicitly understood that, given the reit's unique property history, its board would have to display far greater corporate and social responsibility than a normal private-property company. Many investment analysts - who are otherwise bullish on the reit's future - have expressed worries precisely about this unspoken understanding. They said it would hinder the reit's ability to raise rents and management fees - or otherwise devise purely corporate strategies to maximise profits and jump-start share prices. It must come as a nasty shock that TCI, run by money manager Christopher Hohn, is interested not only in speculating on the reit's share price, but in how the board actually runs its businesses. With a TCI representative involved, The Link's board will find it even more difficult to play nice with shoppers and shopkeepers from low-income families. TCI's boardroom activism is very much the trend among hedge funds around the globe. According to a new study by Morgan Joseph, a New York-based investment bank, companies used to think they could safely ignore criticism by their shareholding hedge funds, but no more: the funds' corporate activism has been extremely successful. Hedge funds are increasingly sponsoring proxy contests to fight for seats on a company's board, or even to oust a board chairman. Morgan Joseph tracked 94 boardroom campaigns launched by hedge funds in the past two years. Of these, nearly half involved seeking a seat on the target company's board. The funds have succeeded 70 per cent of the time, failed in just 4 per cent, and the remaining 26 per cent are continuing. Such moves, Morgan Joseph says, may be a prelude to kicking out the board's chairman or the entire management. It seems TCI is doing in Hong Kong what its peers are doing everywhere else. Lo Siu-lan, the elderly housing estate resident who stopped the government in its first attempt to list The Link back in 2004, did not know how right she was, when she warned that low-income public tenants and shopkeepers would end up paying the price. Alex Lo is a columnist and senior reporter at the Post
