UK - Only a small minority of pension funds currently comply with shareholder activism best practice, a survey by the Local Authority Pension Fund Forum reveals.
The survey of 55 local authority funds found that just 13% were in full compliance with the voluntary Institutional Shareholders’ Committee’s Statement of Principles.
Three out of 10 are yet to comply with one of the principles in the Myners Report that all trustees should incorporate shareholder engagement into fund manager mandates – a legal requirement for local sector schemes.
The LAPFF claims that schemes are relying too heavily on their fund managers to achieve best practice.
Around two-thirds of the respondents delegate all shareholder engagement on UK equities to an external fund manager. But the majority of these funds are also the ones yet to consider compliance with the ISC principles.
The LAPFF found that reliance on fund managers led to:
- A lack of awareness as to who was responsible for implementation of engagement policy within the fund manager.
- A lack of awareness of exactly what was being monitored by the fund manager.
- Limited experience of intervening in investee companies, often on an ad-hoc basis rather than according to pre-stated conditions,
- Assessments of the effectiveness of engagement activities were often dependent on the quality of the fund manager’s reporting, although most fund manager reports do not evaluate their own performance.LAPFF acting chairman John Sanders welcomed the pro-gress made but admitted there was “a long way to go” to meet desired levels of engagement.
He said: “The forum now has a wealth of evidence to enable it to proceed to the next stage of the study – in-depth interviews of pension funds prior to the publication of guidance on best practice for shareholder engagement for the mutual benefit of our members and the wider local authority investment community.”
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