De Wet says governance is a vital issue, now that SA funds want to restructure to become real estate investment trusts (Reits) that are easily understood by international investors.

The argument  "Run things better or face legislation" vs "Judge us by our performance"
 
These investors "have indicated an unwillingness to invest in funds that are externally managed, due to the conflict of interests that can arise", says De Wet. She warns: "The risk of not addressing these issues is that regulatory bodies retrospectively challenge practices that are legal but not fair."

She cites the pension fund "bulking" rulings by the Financial Services Board. "If this were to happen," says De Wet, "there could be disruption in the industry though, unlike the bulking' repercussions, the long-term implications would be to the benefit of the shareholders."

De Wet lists five grey areas where governance practices are unacceptable:
External management and conflicts of interest between manager and fund; The lack of independent directors; Promoters' fees that asset managers earn for listing funds; Related-party transactions that are not disclosed; and Managers or directors putting pressure on valuers to place a specific value.

But De Wet sees no grey area for two practices. First, asset managers are paid "movement" fees for buying and selling properties, which tempts managers to "churn" properties to earn fees. Second, some asset managers insist that brokers share letting and selling commissions.

De Wet looked at eight property stocks that represented 67% of the market capitalisation of the listed property sector. She rated them on weighted governance criteria - and the sector's bluest-chip fund, Hyprop, scored lowest. Hyprop non executive director Marc Wainer also runs Hyprop's external manager, Madison, and is non executive director of Redefine and ApexHi - all governance infringements by De Wet's measures.

But Wainer has a simple answer: "Judge us by our performance. The days are long gone when directors and managers could do what they liked . Shareholders rule and will downgrade if they're unhappy.

"For instance, if Hyprop had successfully bid for the V&A Waterfront, it would have meant an extra R35m in fees for Madison. But we voted to pull out of the bid because it was not in the interests of shareholders. Even if we sit on a number of boards, we can act in each instance in the interest of the shareholders."

De Wet says funds do not disclose enough of what is going on. "Nobody admits to taking part of brokers' commissions," she says. "But a note in Madison's listing statement, that it would not profit from sub contracting the property management function for Redefine, seems to indicate that it does happen in the industry. Shareholders can't take action if they do not know what is happening.''