Introduction
The Stewardship Code (“the Code”) was published by the Financial Reporting Council (“FRC”), the UK’s independent regulator responsible for promoting high quality corporate governance and reporting in order to foster investment. The Code sets out good practice for institutional investors in their dealings with the companies in which they have invested. It is important to note, in compliance with the aims of the Stewardship Code, that Lofoten Asset Management will always seek to enhance the quality of engagement between its clients and companies to enhance long-term returns.
Currently Lofoten Asset Management only acts a discretionary portfolio manager at the fund level. The FRC have noted that certain aspects of the Code are not directly relevant to all institutional investors and we have therefore explained below how each of the Code’s seven principles is applies at Lofoten Asset Management.
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The Stewardship Code
The Code sets out good practice on engagement with investee companies to which the Financial Reporting Council believes institutional investors should aspire. The Code is applied on a ‘comply or explain’ basis.
The Principles of the Code are as follows:
Principle 1 - Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
Principle 2 - Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
Principle 3 - Institutional investors should monitor their investee companies.
Principle 4 - Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
Principle 5 - Institutional investors should be willing to act collectively with other investors where appropriate.
Principle 6 - Institutional investors should have a clear policy on voting and disclosure of voting activity.
Principle 7 - Institutional investors should report periodically on their stewardship and voting activities. |
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Principle 1 - Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
Lofoten Asset Management’s investment process requires that the management of any potential investee company is normally visited or interviewed prior to a decision to invest. The purpose of these meetings is to determine the potential for strategic development and earnings potential over the mid to long term. Particular focus is also given to the way companies interact with all of their stakeholders (customers, employees and shareholders) to ensure that all are treated fairly and a positive relationship is maintained with the company.
In addition to this programme of regular visits, Lofoten Asset Management actively votes all proxies in line with the firm’s voting policy or a client’s lawful instructions. Voting is carried out on a case by case basis.
Principle 2 - Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publically disclosed.
Lofoten Asset Management has a robust and fully documented policy on managing conflicts of interest within the companies in which it invests. Copies of the conflicts can be provided to existing and potential clients on request.
Principle 3 - Institutional investors should monitor their investee companies.
As described above, a crucial part of the investment research process has always been to meet with or interview the management of a company prior to making an investment. Comprehensive and continuous research and monitoring of investee companies is essential to Lofoten Asset Management’s investment process and Lofoten Asset Management utilises various research and support tools to meet this principal.
Principle 4 - Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
Lofoten Asset Management will undertake to escalate its involvement with client companies where it is felt that it is required. Engagement could be through contact with the management, non-executive directors or other investors depending on the specific circumstances and need to protect or enhance shareholder value.
Principle 5 - Institutional investors should be willing to act collectively with other investors where appropriate.
In applying client policies and best practice guidelines, Lofoten Asset Management considers each vote on an individual basis in the light of the relevant circumstances at the company. Where appropriate Lofoten Asset Management will act in co-operation with other investors to promote good governance of the investee company.
Principle 6 - Institutional investors should have a clear policy on voting and disclosure of voting activity.
Lofoten Asset Management maintains a policy of voting at company meetings. Lofoten Asset Management does not publicly disclose voting records as it believes that this information to be confidential to its clients.
Principle 7 - Institutional investors should report periodically on their stewardship and voting activities.
Due to underlying client confidentiality and investment or engagement strategy reasons, it may not always be appropriate to disclose voting actions at a detailed level. Upon request or as required by law or regulation Lofoten Asset Management will report in full to clients on its relevant voting activity.
SUMMARY
Lofoten Asset Management has a business structure and investment approach that complies with The Stewardship Code. We aim to align the objectives of our investee companies with those of our clients through constructive engagement. The investment professional responsible for co-ordinating issues in relation to The Stewardship Code is Willem Vinke.
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