Statement on the UK Stewardship Code
The Financial Reporting Council’s UK Stewardship Code (the “Code”) sets out the principles of effective stewardship by investors. Responsibility for stewardship is shared in publicly listed companies. The primary responsibility lies with the board of the company, which oversees the actions of its management. However, investors in the company play an important role in holding the board to account for the fulfilment of its responsibilities. From the investor perspective, stewardship is about more than just voting: it also includes monitoring and engaging meaningfully with companies on matters such as strategy, performance, risk, capital structure and corporate governance, including culture and remuneration.
The Code is applied on a ‘comply or explain’ basis and the nature of a firm’s commitment to the Code is required to be disclosed under the Financial Conduct Authority’s Conduct of Business Rule 2.2.3. Engadine Partners LLP (“Engadine”, or the “Firm”) supports the principles of the Code as described more fully below. Although the Code is focused on UK issuers, Engadine seeks to apply the same principles to all its investments.
Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities
Engadine’s approach to investing is based on fundamental bottom-up company analysis. The investment team consistently devotes significant time and resource to analysing company results and announcements for both investee and non-investee companies and engages with management teams on the issues around performance, strategy or governance that are appropriate to the situation. The Firm’s investment team assesses each situation on a case-by-case but with the overriding principle that company management’s behaviour and incentives should be aligned with policies that will maximise the value of the business to the Firm’s clients. The discharge of stewardship responsibilities is therefore integral to the investment process.
The Firm has engaged Institutional Shareholder Services Inc. (“ISS”) to facilitate the voting of proxies. ISS provides voting recommendations, but the ultimate responsibility for determining how to vote a particular proxy remains with the Firm. The investment team reviews the recommendations from ISS but may determine that the Firm’s investor clients’ interests are better served by voting contrary to the recommendation. Proxy voting procedures and record-keeping are overseen by the Firm’s operations team. The Firm undertakes periodic reviews of ISS to ensure that it continues to provide a suitable proxy voting service.
Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed
The Firm’s duty is to act in the best interest of its clients. Engadine maintains robust policies and procedures to identify, evaluate and manage potential conflicts of interest across its business.
All staff members have a duty to inform the Firm’s compliance officer if they become aware of any potential conflict of interest, including in relation to voting proxies. Where such a conflict is identified, voting instructions will be subject to assessment and approval by the compliance officer. When considering matters of engagement and voting the Firm always aims to act in the best interest of its clients and to treat them fairly.
Principle 3: Institutional investors should monitor their investee companies
Effective monitoring is an essential component of stewardship. As befits its fundamental investment process, the investment team continually monitors investee companies’ performance and the development of both internal and exogenous factors that could have an impact on the value of the company. The investment team will ordinarily make detailed notes of interactions with companies and will refer back to these in subsequent meetings to identify and open to challenge situations when responses are inconsistent. Effective corporate governance and the alignment of management with external stakeholders are qualitative inputs into the investment process.
The Firm endeavours to identify issues at an early stage to minimise any loss of investment value. While engagement with an investee company’s management team or board may lead to a resolution of the issue, the Firm’s investment team may determine that it is in the best interests of its clients to disinvest the position.
The Firm does not generally wish to be made privy to inside information, and therefore expects companies and their advisers to ensure that information that could affect the Firm’s ability to deal is not divulged without prior written agreement. The Firm’s compliance manual covers the procedures pertaining to the maintenance of a restricted list of securities in which the Firm is an insider.
Principle 4: Institutional shareholders should establish clear guidelines on when and how they will escalate their stewardship activities
Engadine typically looks to invest in companies that its investment team believes to be well managed. If the Firm’s monitoring process raises concerns that an investee company is not being managed in the best interests of its shareholders, the investment team will seek to hold additional meetings with the management team and/or board. Should concerns persist, the Firm may intervene formally through written communication to the chairman or board. Depending on the issue at stake and considered on a case-by-case basis, the Firm will consider whether it would be more effective to intervene jointly with other institutions.
Engadine does not generally issue public statements or campaign publicly on issues in advance of general meetings. The Firm prefers to engage confidentially to discuss issues in the belief that this is the most constructive and effective approach.
If the investment team has determined to vote against management on a substantive issue and time permits, the Firm will generally inform the company of its intention and explain the rationale for its disagreement.
Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate
In normal circumstances Engadine will tend to act on its own when engaging with investee companies. However, the Firm is prepared to communicate and potentially collaborate with other shareholders if it is likely to result in a positive outcome for its clients and doing so would not infringe on any legal or regulatory requirements.
Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity
Engadine seeks to vote all of its shares in the best interest of its clients. As Engadine typically invests in companies that its investment team believes to be well managed, the Firm will generally vote with the management recommendation on routine matters and will consider other items on a case-by-case basis. One input to this consideration is the recommendation from ISS. ISS is a leading provider of corporate governance analysis and advice and its recommendations reflect prevailing market best practice and standards of corporate governance.
The Firm discloses its voting policy and voting activity to clients upon request. The Firm does not publicly disclose voting records as it considers that such information is confidential to its clients.
Engadine does not generally lend stock.
Principle 7: Institutional investors should report periodically on their stewardship and voting activities
Engadine maintains detailed records of its interactions with companies and how it has voted proxies. It is not the Firm’s policy to report publicly on engagement and stewardship but will provide information to its clients upon request. The Firm acknowledges that transparency is a feature of effective stewardship while also recognising that disclosing confidential portfolio information may not be in its clients’ best interests.