The UK Stewardship Code
Under COBS 2.2 of the FCA Handbook, Absolute Return Partners LLP (ARP) is required to make a public disclosure in relation to the nature of our commitment to the UK Stewardship Code which was published by the Financial Reporting Council (FRC) in July 2010.
The Code aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities. It sets out good practice on engagement with investee companies and is to be applied by firms on a “comply or explain” basis.
Relevance
ARP acts either as investment manager or investment adviser to one fund that invest in global (including UK) equities:
- The Global Equity Alpha Fund
The UK Stewardship Code is thus relevant to some aspects of our business. The following principles, which we adhere to, relate specifically to the two abovementioned funds.
Principle 1:
Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
At the heart of the investment process is a desire to eliminate human error which we believe is the key to generating long-term shareholder value. We recognise that the investment process we apply is not in tune with all elements of the Code; however, the spirit of the code which promotes the creation of long-term shareholder value is an objective that we fully embrace.
Principle 2:
Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
The investment approach is identical throughout the world and the average holding period is measured in years; yet conflicts of interest may still arise. Our Conflicts of Interest Policy is summarised on our website.
Principle 3:
Institutional investors should monitor their investee companies.
We never meet the companies in which we are invested; neither do we attend general meetings. This policy is a result of the investment decision process which seeks to minimise subjectivity. However, this does not imply that we do not monitor the companies in which we are invested; they are in fact monitored continuously.
Principle 4:
Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
If the companies in which we are invested are no longer deemed of the highest economic quality, we will under normal circumstances sell when we next rebalance the portfolio. It is not part of the investment approach to engage with management for the purpose of influencing corporate strategy.
Principle 5:
Institutional investors should be willing to act collectively with other investors where appropriate.
We are in principle prepared to act collectively with other investors whenever appropriate. Having said that, the investment methodology dictates change when a company no longer meets the strict quality criteria. For that reason, we are likely to have sold our shares by the time collective action becomes relevant.
Principle 6:
Institutional investors should have a clear policy on voting and disclosure of voting activity.
The success of the investment strategy is predicated upon the ability to identify companies of the highest economic quality which are usually managed by people of the highest quality. For that reason we are usually in support of management. Having said that, since it is the objective to eliminate as much subjectivity as possible, we do not normally vote.
Principle 7:
Institutional investors should report periodically on their stewardship and voting activities.
The investment process has been communicated to all investors in our equity products. It is our policy to communicate to investors any action which may deviate from the general policy outlined in this policy document. We herewith certify that we have never used our right to vote; nor have we ever been involved in stock lending activities.