UK Stewardship Code & SRD II

Introduction

Under COBS 2.2.3 of the FCA Handbook, we are required to disclose the nature of our commitment to the Financial Reporting Council’s UK Stewardship Code (“the Code”).  “Stewardship” is the responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.  The Code comprises a set of 12 “apply and explain” principles for asset managers and asset owners and adherence to the Code is voluntary.

The Firm supports the principles of the Code but does not consider it practicable currently to commit to full adherence with the Code.

In addition, the EU Shareholder Rights Directive II implemented in June 2019, sets out to strengthen the position of shareholders and to ensure that decisions are made for the long-term stability of companies.  The obligations which apply to asset managers are listed under COBS 2.2B.

The Firm’s governance structure and policies support good client outcomes and effective stewardship e.g., the Remuneration Policy is regularly reviewed to ensure the Firm does not encourage staff to take excessive risk with a focus on short-term results at the expense of long-term interests.  The Partnership Committee is responsible for setting our strategic objectives and setting the cultural “tone” of the Firm.

Investing

The Firm’s aim is to maximise investors’ returns over the medium to long term by investing in high-quality companies.  We source potential investments through systematic and non-systematic means: proprietary quantitative screening; news, trade publications and industry expertise; network of talented investors; database of previously analysed opportunities.  We carry out an initial assessment to determine whether we should devote time to an idea: understanding how a firm makes money; analysis of the firm’s capital structure.  If interest remains, we perform rigorous due diligence based on a checklist, including a standardised, 50-page investment memorandum, building our own models, determining drivers of prospective returns and associated risks including issues of sustainability and ESG.  The characteristics we seek include a track record of consistent earnings, sustainable competitive advantages and aligned and proven management teams.

Monitoring

Once an investment is made, we monitor the investee companies’ financial and non-financial performance using publicly available information, third party research and direct communication.  As part of our monitoring process, we are particularly interested in:

  • The investee company’s performance
  • Developments, both internal and external to the company, that drive the company’s value and risks
  • The company’s leadership
  • The company’s corporate governance
  • Quality of the company’s reporting and disclosures, regarding financial and ESG matters.

Any issues that are identified via our monitoring process (e.g., those that may result in a loss or impairment of intrinsic value) are discussed within the Research team and a preliminary decision is reached in respect of whether the risk is such that we need to exit the position or whether it is a risk we should continue to further investigate which could include discussions with the company.

Escalation

We will actively engage with a company in which we perceive there to be a stewardship issue.  Instances where it may be necessary for us to engage directly with the company include where we have concerns about the company’s strategy, performance, governance, remuneration or approach to risks, including those that may arise from social and environmental matters.

Where we engage directly with investee companies, it is initially on a confidential basis and normally via the Investor Relations department.

Voting

Our Research team will consider how to vote on each holding and will not automatically follow the investee company’s Board.  We use a third-party proxy research service provider, Broadridge Financial Solution Inc.

Acting collectively with other investors

In principle, we understand the importance of collaborating with other investors where our respective stewardship interests are aligned.

Our decision to pursue a collaborative effort would, among other things, be a function of:

  • The nature of the issue
  • The materiality of the issue
  • The likely efficacy against acting privately
  • The motivation of the other investors.

Reporting

We send investment reports to our clients on a regular basis in accordance with regulatory requirements or as otherwise requested.  These reports primarily show how our clients’ investments are invested across the various asset classes and how those investments have performed compared with the benchmark.  The UK Stewardship Code recommends that signatories to the Code account to clients as to how they have discharged their stewardship activities.  We do not formally report our stewardship activities to our clients in our standard client reports, but we are always happy to discuss stewardship matters with individual clients on request.

Conflicts of interest

We have policies in place to identify and manage any potential conflicts of interest ensuring the best interests of our clients are put first.

Review

This statement was last updated in June 2022, and is reviewed on a regular basis, at least annually by the Compliance Officer and the Firm’s Partnership Committee.  The Firm believes that it is in both our own and our clients’ interests to ensure that our stewardship activities contribute to us only investing in those companies that demonstrate good corporate governance and shareholder commitment on an ongoing basis.  The result of this will be reflected in the performance of our clients’ investments for which our clients will ultimately hold us to account.