UK - A review of equity market regulation launched today will examine if pension funds have been encouraged to pursue passive investment strategies at the cost of actively managing stock portfolios and engaging with companies on long-term development goals.

Speaking at the launch of the call for evidence, Professor John Kay stressed the eponymous review would not focus on issues of corporate governance, but instead examine corporate decision-making and performance.

"We'll be concerned with actions and effects," said Kay, an economist and former chairman of Clear Capital, to an audience gathered at the National Association of Pension Funds (NAPF) offices in London. "Our interest in process arises only to the extent we can identify direct links between process and performance."

However, Sir Roger Carr, who sits on the court of directors at the Bank of England and is chairman of utilities company Centrica, argued that it was impossible to see the two areas as separate.

"It is quite difficult to divorce governance from performance," he said. "Arguably, we've already got equity markets to thank for working with business to help construct a code of governance in the UK."

He said that while the Kay Review was examining issues of long-term ownership, as well institutional investors' investment timescales, it was "naïve" to think all shareholders would choose to take a long-term view.

Sir Roger added that institutionals needed to act as stewards and police corporate behaviour, but said oversight of asset managers was also required.

"You have to get engaged, sufficiently deeply, to oversee the managers and make sure they are doing the job you think they should be doing," he said.

Kay, however, stressed that an area of concern was if pension funds were being encouraged to pursue a passive investment approach.

"Is it possible that the more demanding obligations to which pension trustees are now subject have in practice encouraged them to pursue more passive investment strategies?" he asked.

The NAPF, meanwhile, gave an indication what its submission to the review could include, with chief executive Joanne Segars calling for changes to the way proxy voting was conducted.

"One thing that deserves attention is the proxy voting chain, which is so complex neither shareholders nor issuers really know what's going on," she said, arguing its complexity was unacceptable and had been tolerated "far too long".

Segars said a successful outcome of the review would allow for improved regulations and incentives for better corporate behaviour.

The Kay Review, launched by the Department of Business, Innovation and Skills, will welcome submissions until 19 November, with an interim report expected in February.