It seems George Boubouras is well connected. Credit:Paul Jeffers I need to declare here that the Pascoe family super fund holds Contango MicroCap shares and will be voting to keep Ian Ferres, David Stevens and Glenn Fowles as directors and rejecting the effective takeover bid by Ken Poutakidis and Trevor Carroll. I receive no payment and have not received any payment from Contango MicroCap other than regular dividends. Since 2004, Contango MicroCap has been a low-cost way of gaining exposure to the microcap sector and has paid a decent dividend along the way. Unfortunately, problems with performance and structure seem to have arisen since personal changes and the management buyout of CAM last year. So far this financial year, Contango MicroCap's CAM-managed investment portfolio is up 0.6 per cent. Packer and Robert Rankin backed the CAM management buyout with $13 million, with George Boubouras as managing director, and floated the company. It seems Boubouras is well connected. He's also on the investment committee of Switzer's new exchange-traded fund. CAM is managing the ETF but splitting the fees.

Aside from underperforming lately as an investment manager, CAM has other challenges. After running as high as $1.93 soon after floating, CAM shares are down to $1.34 and it is burning through cash. The company's latest quarterly filing showed cash of $956,000 at the end of December and estimated cash outflows of $2.18 million for this quarter. In the December quarter, it has receipts from customers of $759,000. Staff costs alone in the same period were $782,000. The current share price seems to consist primarily of an amazing amount of goodwill. Ferres, Stevens and Fowles subsequently pushed to appoint a second funds manager, OC Funds Management, to create a little competitive tension. Over the same seven months that CAM managed a 0.6 per cent gain, the OC Microcaps fund is claiming 15.6 per cent. Presumably whichever manager performs best should end up managing most of the money. CAM is facing a performance review in June 2019. Under its current contract, Contango MicroCap is paying CAM a fee of 1.25 per cent of assets under management. Ferres told me OC Funds is taking on the challenge for "a substantially lower" base fee than CAM, but it can earn a performance fee if it returns positive results that beat the Small Ordinaries index by more than 500 points after fees. Ferres said shareholders would be happy to pay a performance bonus if such a high hurdle was met. When Contango MicroCap owned its investment manager, the management fee was in effect internalised – it didn't matter that 1.25 per cent was much higher than "old school" LICs because it was part of the company. After the management buyout, it does matter.

So from the point of view of a Contango MicroCap shareholder, setting up some competitive tension to help focus the investment managers' minds and at a lower cost than just leaving all of Contango MicroCap's $172 million with CAM looks like a good idea. But it appears that parties connected with Boubouras' CAM don't like that, hence the calling of the EGM. Which is where the question of the fiduciary duties of stockbrokers' discretionary accounts begins to raise its head. The relationship brokers enjoy with funds managers extends beyond mere trades to potentially very lucrative underwriting of dividend investment plan shortfalls and initial public offerings (IPOs). Contango MicroCap's notice of general meeting shows that two of the three requisitioning shareholders, Robert Fraser and Scott Dolling, are directors of broker Taylor Collison, which acted as underwriter of the CAM IPO and earned total fees of $1.13 million for its efforts. Fraser is also a director of TC Corporate, which was corporate adviser to the IPO and the seventh-largest shareholder in CAM when it listed.

The third requisitioning shareholder is Bill Laister, who is the third-largest shareholder in CAM and CAM's senior portfolio manager. One of the two would-be directors wanting to displace the three incumbents also has a close relationship with CAM. The notice of meeting says one Ken Poutakidis company was a corporate adviser to the CAM float, receiving $264,000, another is a top-20 shareholder in CAM and a third acted as a vehicle for the management buyout. As the notice says: "It is the view of Ferres, Stevens and Fowles that Poutakidis has clear ties to the investment manager." Ferres has been an independent director of Contango MicroCap since 2009, bringing with him a rich depth of funds management experience and a fine reputation. Among other things, he was executive director of National Mutual and managing director of both Meridian Funds Management and Australian Unity. He has chaired and been a director of numerous boards. Stevens and Fowles were founding directors of Contango MicroCap. Among other things, Stevens was chief investment officer of HSBC Asset management and Contango MicroCap's portfolio manager from 2004 to 2011, during which interesting times the company recorded an average 26.6 per cent return. Fowles has 30 years' experience in financial services. He was Contango's chief financial officer during its glory days.

The other two members of the Contango MicroCap board not under challenge are the no-recommendation chairman Kerr and Alistair Drummond – who works for CAM and therefore to avoid conflict also is making no recommendations. So, in this apparent battle between the interests of funds manager CAM and the three Contango MicroCap directors who are independent of CAM, it seems the result will depend on how a couple of stockbrokers vote the Contango MicroCap shares held in their discretionary accounts and whatever recommendation they might make to clients. Taylor Collison's Adelaide office and Brisbane's Morgans have been significant promoters of Contango MicroCap. They may have good relationships with CAM. When it comes to how they vote Contango MicroCap shares in any discretionary accounts, it will be interesting to see if they vote in the best interests of their clients or their own firm. If you're one of the 6000 Contango MicroCap shareholders who aren't connected with CAM, you might like to study the notice of general meeting very closely - and vote.