Pension trustees test UK’s revamped stewardship code

FCA questioned over whether asset managers are preventing clients from acting as corporate stewards

Chris Flood - Financial Times
 OCTOBER 30 2019

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An influential group of pension fund trustees is providing the first test of the UK’s recently revamped governance standards for asset managers. The revised Stewardship Code, which was published last week, is designed to protect the interests of British savers and pensioners by ensuring that their investments are managed responsibly. Fund managers that sign up to the code must explain how assets are managed “in alignment” with their clients’ stewardship and investment policies. The Association of Member Nominated Trustees is demanding that the Financial Conduct Authority, the City regulator, should investigate whether asset managers are preventing pension scheme trustees from acting as effective corporate stewards by refusing to accept voting instructions from clients invested in pooled funds. “The FCA must ensure that asset owners’ voting policies are acted on by fund managers. The new UK stewardship code includes a requirement for fund managers to explain how they have aligned their voting policies with those of their clients. We expect this requirement to be respected in both the letter and the spirit of the new code,” said Janice Turner, co-chair of the AMNT. The AMNT has won the backing of Catherine McKinnell, the Labour member of the parliament who served as interim chair of the Treasury committee until last week. Ms McKinnell wrote this month to Andrew Bailey, head of the FCA, to ask what action the regulator had taken in response to the AMNT’s complaints. “Do you think it is possible for pension schemes to develop robust environmental, social and governance policies and to take savers’ views into account if fund managers choose not to act on the stewardship policies of their clients,” wrote Ms McKinnell. The FCA has been asked to respond by November 5. The AMNT’s complaint stems from a review of the policies of 35 of the UK’s best-known fund managers. Most of the 25 managers that responded to the AMNT were unable to accept separate voting instructions from clients on contentious issues such as climate change or executive pay. Some fund managers argue that demand from clients to split votes in pooled funds is insufficient to justify introducing arrangements that are operationally complex and potentially more costly.  Other managers also object that splitting votes in a pooled fund could send conflicting signals to investee companies and undermine the possibility of successful engagement. The Investment Association, the trade body representing the UK asset management industry, said that institutional investors had a choice between using pooled funds or segregated mandates.  “Those clients who choose to use a pooled fund are usually informed that their shares will be voted in accordance with the [asset manager’s] voting policy. If a client wishes to have a more bespoke service that includes directed voting then they have the option to use a segregated mandate,” said the IA. Ms Turner, however, said the FCA should ensure that fund managers’ actions were consistent with the long-term interests of savers. “The days of asset owners being forced to delegate their stewardship policies to their fund managers should be coming to an end,” she said.

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