The Stewardship Code
In July 2010, the Financial Reporting Council (‘FRC’) published The Stewardship Code (‘the Code’). The aim of the Code is to enhance the quality of engagement between investors and companies to help improve the long-term returns to shareholders and the efficient exercise of governance responsibilities. The Code was updated with guidance in September 2012, and this statement incorporates the changes made at that time.
This statement was last reviewed on 29 May 2018.
Scope of the Code and its application to Revera Asset Management Ltd
Revera Asset Management Ltd (‘Revera’) is an institutional fund manager, regulated by the FCA, and manages discretionary funds on behalf of professional clients. Therefore, Revera falls within the scope of the Code. In addition, Revera manages collective investment schemes, and in July 2011 new regulations covering procedures for the exercising of voting rights were incorporated into the FCA COLL regulations (specifically COLL 6.6A.6R, ‘the COLL Regulations’). Revera’s approach to the requirements of the Code incorporate the undertakings as set out in the COLL Regulations.
Revera agrees with the FRC’s assertion that stewardship is more than just voting. Revera’s approach to stewardship promotes the engagement with companies on matters such as strategy, performance, risk, capital structure and corporate governance. Moreover, engagement of this nature is a fundamental part of Revera’s investment decision-making process.
The responsibility and ownership of this statement and stewardship activities lies with Revera’s Board of Directors (‘the Board’). No part of the stewardship process is outsourced to any third party.
Summary of Revera’s approach
Revera is a small UK equity investor, with a typically passive investment style. Whilst Revera’s fund managers have a typically high level of engagement with investee companies before and during the investment period, they never make an investment with the expectation of “shaking up” any element of the business for the benefit of shareholders. Typically Revera would not invest in a company where it was particularly unhappy about elements of governance, strategy, financial management etc.
Revera also recognises that as a small investment boutique, it is unlikely to make a material difference to the votes cast in corporate actions or general meetings.
Therefore, the Board has decided that it is not in the interests of its clients for fund managers to spend time voting in company meetings as a matter of course.
However, Revera accepts that there are times when active engagement on issues, where it might fundamentally disagree with the approach another company has taken, might be required. Typically, Revera will look to resolve these issues by direct verbal or written communication with the company, make representations to the company’s advisers, and finally to act either individually or in conjunction with other investors to effect change by voting at a meeting of the company concerned.
However, from the Board’s direct experience over many years, it has found that if actively engaging with investee companies, where a specific change is sought to improve the outcome for clients and beneficiaries is time consuming, there is very little relationship between the time invested and the ultimate benefit for clients. Therefore, Revera is very clear that in areas where its fund managers have a materially different view from an investee company, on matters affecting shareholder outcomes, clients and beneficiaries are overwhelmingly better served by the timely sale of their investment.
On release of an investee company’s annual report, summary financial information is entered into Revera’s proprietary analytical model. This includes a review of the AGM Notice and confirmation that nothing in the Notice requires a voting action. Meetings held during financial years are dealt with on an ad hoc basis.
Revera’s policy can be described in relation to the Code with reference to its stated principles as follows;
Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
Engagement with the management teams of investee companies is central to the way Revera runs its investment process. This will normally be done through a series of face to face meetings, and discussions on the appropriateness of management actions will normally take place through this medium. However, at times, Revera may reflect concerns or considerations on a company’s actions via its advisers, most typically its corporate broker. Revera may, from time to time, engage with other shareholders in an investee company in an attempt to strengthen the message that it would like to get across to management teams. Only very rarely will Revera make these discussions public.
This policy holds for concerns or considerations that Revera might have in relation to a company that it should be aware of, but does not fundamentally change the attractiveness of the company as an investment. In instances where Revera’s concerns or considerations are fundamental enough to reduce the attractiveness of the company as an investment, then it will, in the first instance, sell its holding without necessarily attempting to engage the relevant management team.
Stewardship considerations are an integral part of the investment management process and, therefore, are undertaken by the fund managers responsible for client assets.
Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
As an FCA regulated business, Revera is required to take all reasonable steps to identify, report and minimise any conflicts of interest that might arise in the course of its business. This process is enshrined in its Conflicts of Interest Policy which is given to all of the company’s clients. Specifically, in relation to Revera’s stewardship responsibilities, conflicts of interest are unlikely to arise as it deals only on behalf of its clients and not on its own account. Employees are prohibited from incremental investment in shares which would fall within the remit of any of the company’s clients. Revera’s Conflicts of Interest Policy recognises that there could be instances where its client funds may be invested in companies who themselves have invested their client funds in funds managed by Revera. In the event of any question over the stewardship activities of the companies concerned it should be dealt with by an immediate sale of the underlying investment.
Institutional investors should monitor their investee companies.
Revera regards itself as a fundamental investor. Therefore, the ongoing monitoring of investee companies is a crucial part of its investment process. Each investment is reviewed at specific investment meetings held twice every calendar month, and investment profiles are updated every six months following engagement with the investee company. However, there is no formal process for establishing the effectiveness of stewardship monitoring specifically, as it is so integral to the overall investment process that it is captured as part of the investment management procedures.
Revera is normally willing to be made an insider in investee or potential investee companies. However, this should only be done via the investee company’s corporate broker, and only after the broker has established from Revera that it is willing to be made an insider. Revera will normally refuse to be made an insider if the period of being so extends beyond three weeks.
Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
Revera does not set itself out as an activist investor. Revera will typically only invest in businesses that it feels are well run in the interests of shareholders or, where that is not the case, a change in management personnel or style has already been agreed to rectify Revera’s perceived concerns. Where circumstances change and Revera is not aligned with investee company management teams in what they are trying to achieve, then Revera will reflect its concerns to the management team directly or via the investee company’s corporate adviser. If Revera remains fundamentally concerned about the issues raised then it will typically sell the investment. Revera is unlikely to get into a combative situation with investee company management teams.
Where, for liquidity reasons, Revera cannot exit the investment to its satisfaction, then it will use all statutory means at its disposal to effect change. These will include, but not be restricted to, voting in company meetings, calling company meetings and combining with other shareholders to call company meetings.
For clarity, Revera has no concept of being “underweight” in any investment. Each investment made by Revera is a positive decision to apply client funds for their benefit. Therefore, this policy applies to all of Revera’s investments.
Investors should be willing to act collectively with other investors where appropriate.
Where other remedies to restoring shareholder value have been exhausted, Revera will act collectively with other shareholders.
Institutional investors should have a clear policy on voting and disclosure of voting activity.
Revera’s standard policy is not to vote at investee company meetings. Where Revera perceives a specific upside can be achieved for the benefit of our clients (and their underlying shareholders), then Revera will vote in these instances. Voting activity will be made available on request to Revera’s Compliance Officer.
Revera does not lend out stock.
Institutional investors should report periodically on their stewardship and voting activities.
As Revera has a standard policy not to vote in meetings, its Board believes that it is inappropriate to disclose voting activity as a matter of course. Voting activity will be made available on request to Revera’s Compliance Officer.
Revera engages frequently with the Authorised Corporate Director for its collective funds, and has agreed an exception-based reporting framework with it.
Given Revera’s general policy of non-activism, it is disproportionate to the scale of the business to independently verify the execution of this voting policy as it is tantamount to simply confirming zero action. Therefore, Revera does not take any assurance reporting as part of its procedures.