At the NAPF's Annual Stewardship Conference, Steve Waygood, Chief Responsible Investment Officer for Aviva Investors, will call on the sector to respond to the challenges laid out by the Kay Review on UK equity markets.
At the NAPF’s Annual Stewardship Conference, Steve Waygood, Chief Responsible Investment Officer for Aviva Investors, will call on the sector to respond to the challenges laid out by the Kay Review on UK equity markets.
Waygood will say that the Kay Review provided an excellent analysis of the issues and conflicts of interest in the capital market supply chain, but failed to put forward tangible recommendations that are sufficient in scale to overcome the cultural barriers and financial conflicts of interest that are such significant barriers to effective stewardship, Aviva Investors revealed.
As a predominantly long-term, risk-averse equity investor, Aviva Investors invests for its clients over long periods of time. However, looking at the broader dynamic in the capital markets, the pressures are clearly to the short term, which ultimately affects both investor and company behaviour. This short-term focus undermines the ability of capital markets to deliver sustainable economic development, and reduces the long term return potential for clients.
Waygood will call on pension trustees to consider the long-term stewardship of the capital their funds are invested in as a responsibility. He will also call for the industry to respond to the work of Kay by developing an Investment Industry Stewardship AGM. This would enable the asset-owning clients of asset managers to hold their clients to account, and rather than each fund or fund manager being asked to hold individual AGMs efficiency gains can be made by bringing the trustees and fund managers together.
According to Waygood: “An Investment Industry Stewardship AGM could be convened by industry associations such as the NAPF and would allow asset managers to present their stewardship statements to an audience of Trustees who would then ask questions and vote on the statement. This event could have a potentially transformative effect on communication between trustees and asset managers and could also serve as clarification from government of the fiduciary issue that Kay highlighted.
“It will hopefully start to shift culture and approach to stewardship of pension trustees without the need for regulation or heavy-handed intervention. The results of the vote could be disclosed, with the best statements singled out for special mention by the Government and NAPF, and the worst being asked to improve.
“Although asset managers are expected to comply or explain against the Stewardship Code, they are not currently held to account on it by asset owners. The analogy is that companies are held to account for delivery on the Corporate Governance Code against which they must also comply or explain in part by investors voting at the AGM. This means that investors can evaluate the explanation and take action accordingly. Currently, no such equivalent forum exists where investors’ explanation for their own stewardship work can be formally evaluated by their clients. Consequently, the chain of accountability is broken.”