Paul Lee explains how pension schemes can use the NAPF’s disclosure tool to monitor the engagement of asset managers and why there is still a long way to go
When it comes to stewardship, pension fund investors have real clout.
As major institutional investors they have a strong interest in achieving and maintaining high standards in the companies in which they invest and research states that 96% of pension funds agree that institutional investors have stewardship responsibilities.
It’s no surprise then that stewardship – the active monitoring of and engagement with companies – is an increasingly hot topic being thrashed out across trustee boards’ tables.
The UK Stewardship Code was first introduced by the Financial Reporting Council (FRC) in 2010, with the goal of enhancing the quality of engagement between asset managers and companies to help improve long-term returns to shareholders. As pension funds have long-term investment horizons and are investing to meet liabilities stretching many decades ahead, there is a clear necessity to manage long-term risks through not only asset allocations, but also active ownership practices.
A question mark remained, however, over how pension funds and trustees in particular could find out whether their asset managers, who have the primary responsibility for stewardship, were adhering to these principles.
The framework has been carefully designed to provide pension funds with an ‘at a glance’ comparison tool
So was born in October 2013 a simple tool called the NAPF’s Stewardship Disclosure Framework – aimed at providing pension funds with greater transparency around the stewardship policies and activities of the more than 200 asset manager signatories to the UK Stewardship Code.
They can then consider whether this is appropriate to the investment style and the pension funds’ philosophy.
The framework has been carefully designed to provide pension funds with an ‘at a glance’ comparison tool of the stewardship activities across asset managers, giving pension funds a ready insight into their current and prospective investment managers’ approach to undertaking stewardship activity on their behalf.
There are still a proportion of the largest asset managers who have not yet completed a framework
Since last October there has been a very positive response to the Disclosure Framework, with one quarter (51 at the time of going to press) of the signatories having completed it, representing almost £10.5trn assets under management (AUM). Six more asset managers have committed to completing the framework by the end of March 2014, representing a further £3trn AUM.
Worryingly, there are still a proportion of the largest asset managers who have not yet completed a framework. Out of the 50 largest asset manager signatories identified by the NAPF by AUM, 15 managers with a combined AUM approaching £4.5trn have so far yet to respond to the framework.
What does this say about their willingness to give transparency in this crucial area?
It is hard to imagine why an asset manager would not want to disclose their stewardship credentials to existing and future clients
We would encourage these managers yet to respond to follow the lead of their 51 peers. With pension funds like those sponsored by BT, Barclays and Whitbread having signed up to the Stewardship Code it is hard to imagine why an asset manager would not want to disclose their stewardship credentials to existing and future clients.
Of those asset managers that have completed a framework, around two thirds have said that at least on a quarterly basis they publicly disclose their voting records and report to their clients on their stewardship activities.
Encouraging news, although there is scope for further improvements to the content of these disclosures, which is something the NAPF will explore as 2014 progresses.
There is still work to be done, but the focus is certainly shifting to better measuring and understanding stewardship. Let’s hope the work continues so that pension fund investors can have better transparency across the board.
Paul Lee, Head of Investment Affairs at the NAPF