Investors worth £350bn draw ‘red lines’ with fund managers

Investors worth £350bn draw ‘red lines’ with fund managers

Major pension funds with around £350bn invested in UK asset managers are meeting today (10 March) with fund management industry leaders to demand improved reporting and engagement, as part of a ‘red line voting’ initiative to raise governance standards.

A half-day event is being by Schroders in London to mark ‘ownership day’, coordinated by the UK Sustainable Investment and Finance Association, and will feature the official launch of the Association of Member Nominated Trustees ‘red line’ project.

In what is described as the “first investor initiative of its kind”, this will set “red lines” for companies’ environmental, social and governance performance with corresponding voting instructions for fund managers.

According to a statement from Uksif, the event today will debate voting, reporting and engagement standards, as well as review an investor-led guide launched in January to clarify investors’ reporting expectations.

Both the voting red lines and reporting guide are intended to be used by asset owners of all types and is the latest in a wave of investor activity to improve industry standards in the wake of the Kay review and the UK Stewardship Code.

These have all highlighted structural issues around interactions with investors, including in particular ‘hidden’ costs and fees. This is a common refrain in a growing clamour for change among fund managers for greater fee transparency.

Last November, a damning Financial Services Consumer Panel report was published, demanding a “radical” new single investment charge to prevent customers being ripped off.

The 450-page FSCP paper argued for a new single investment charge that would cover all these expenses, although this would require “structural changes in the industry and would be likely to be challenged by investment firms”.

In the wake of the announcement of a probe into charges for default funds within occupational pension schemes last month, pensions minister Steve Webb called for a light to be shone on “dark corners” of the investment and pensions industry.

He said: “There is a fear that the dark corners of the investment and pensions industry hold some nasty surprises. We have a duty to throw light for the first time on potential hidden charges.”

Jessica Ground, global head of stewardship at Schroders Investment Management, said: “As long term investors we view engaging with companies on ESG issues as an important part of our investment processes and a way of creating value for our clients.

“We are encouraged that more clients are interested in these activities. Asset owners and managers working together in this way have the potential to improve the whole investment system.”

Simon Howard, UKSIF chief executive, added: “UKSIF members recognise that good stewardship of savers’ assets, including effective use of owners’ votes and top-class reporting to owners is a key way of building value for future pensioners.”