GLOBAL - Pension funds could improve equity market performance by co-operating on voting and engagement issues, a Watson Wyatt report has found.
Encouraging better governance of poorly governed firms could add value to a broad market portfolio, said Tim Currell, senior investment consultant at Watson Wyatt: “We do not believe this is a zero sum game and that by improving the governance of poorly governed firms the price advantage of better governed firms will be eroded... but rather that improving governance can unlock profits and cash flows for shareholders that might otherwise be wasted.” Watson Wyatt also questioned whether fund managers had suitable structures to evaluate their investee firms on corporate governance issues, and Currell stressed pension funds could play a key role there too.
“In order to ensure fund managers have good voting arrangements, pension fund trustees should establish that their fund managers have voting policies in place and apply these effectively,” he said. Currell concluded that, where fund management firms applied principles of good corporate governance, it would improve long-term financial performance in clients’ portfolios. By Damian Clarkson
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