NAPF uncovers greater emphasis on shareholder engagement
UK - The majority of pension funds in the UK now factor in attitudes to shareholder engagement when selecting investment managers, according to a new survey.
Findings from the National Association of Pension Fund's (NAPF) annual engagement survey showed that pension fund engagement with companies appeared to have more of an impact in 2010, with 65% of respondents stating engagement activity was very or quite effective, compared to 50% the previous year.
The survey of 38 pension funds with combined assets of more than £200bn (€240bn) found that 64% of schemes intended to devote more of their time in the future to scrutinising the actions of investment managers on engagement issues. A greater proportion (79%) said they delegated engagement work to their investment managers, while 11% delegated to a third party, such as a specialist engagement service.
The research highlighted that two-thirds of the schemes covered by the survey have already incorporated the Institutional Shareholders' Committee's Statement of Principles (SIP) into contracts with investment managers or the scheme's own SIP, with 39% admitting the pension fund's attitude to investor responsibility will influence the selection of investment managers or consultants. This is an increase from 31% in 2009, and has been demonstrated recently in Merseyside's search for emerging market and Far East equity managers for its £4.2bn fund. (See earlier IPE article: Merseyside increases focus on ESG for emerging markets)
Figures from the survey revealed that 49% of respondents review their investment managers' application of the corporate governance on a quarterly basis, with 65% either very or quite satisfied with the standard of reporting from managers.
The majority of respondents believed the pension fund industry could do more as shareholders, with 11% agreeing strongly and 45% agreeing somewhat that pension schemes are not active enough in their engagement. This was despite 59% of resondents having been involved in a class action to collect a settlement, 16% actively involved in legal actions, and a consistently high percentage of schemes exercising their voting rights in UK, US and European company meetings.
David Paterson, head of corporate governance at the NAPF, said: "The world we live in is becoming ever more complex and the importance of effective engagement and manager accountability has never been higher, as demonstrated by the new Stewardship Code.
"The survey shows that pension funds raised their game in 2010. The challenge now is to strengthen further the chain of accountability which links funds, their investment managers and the companies in which they are invested."