UK Fund Manager Transparency Continues To Increase

by Phillip Morton, Investors Offshore.com

05 July 2007

The Investment Management Association's latest annual survey on fund manager engagement with companies shows that the level of transparency in the UK is increasing.

The survey claims to be the most comprehensive of its kind covering 33 firms managing GBP640 billion of UK equities, representing 68% of the market. It found that the trend is increasingly for engagement to be integrated into the investment process, complemented by regular dialogue with senior management and monitoring which allow firms to vote and engage objectively on an informed basis.

All 33 firms in the survey have a policy to vote all their UK shares. All now report to clients providing explanations of their decisions - especially when they have voted against the Board - together with details of engagement other than voting.

The survey found that firms are also increasingly making details of voting and engagement public by putting them on their websites, with 16 currently doing so (representing 53% of the sample in terms of ownership of UK equities), and others planning to do so in the future.

Other key survey findings included:

• All the firms have policy statements on engagement, 26 of which are made public on their websites;
• 24 firms include their policy on voting in both new and existing agreements, compared to 21 in 2005 and 19 in 2004;
• Engagement is integrated into the investment process - in 18 firms final voting decisions on controversial issues are taken at a senior level and in a further 14 the portfolio managers are actively involved;
• The majority of firms have staff dedicated to engagement with these resources increasing by just over 5% over the last year and in the previous two years by just over 10% per year; and
• 27 firms provided details to IMA on how they had voted which showed that there are fewer votes against the Board or conscious abstentions than in previous years, suggesting that regular engagement is improving understanding between companies and investors.

Commenting on the findings, Richard Saunders, Chief Executive of the Investment Management Association, noted:

"Investment managers' commitment to engagement has increased year on year over the last 4 years with this momentum looking set to continue. Engagement is taking place at many levels and is becoming ever more linked to the investment process."

"At the same time the process has become significantly more transparent, both as to the publication of voting policies and as to the disclosure of actual votes cast. The critical disclosure is to clients, who are the ultimate owners of companies, but public disclosure has steadily increased, a process which can be expected to continue following the recent publication by the Institutional Shareholders' Committee of its new framework for voting disclosure."

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