Stewardship Code

Global Systematic Investors LLP (“GSI”)

What is the Stewardship Code?

The Stewardship Code (the “Code”) is a set of principles and guidelines set out by the Financial Reporting Council. The Code is a framework for asset managers, pension fund trustees, and other institutional investors, concerning the engagement with the management of companies in which they invest. In doing so, the Code is designed to encourage institutional investors to act in the best interests of their clients, the ultimate beneficiaries of the investments.

What are the principles?

The Code comprises seven principles whereby institutional investors should:

  1. publicly disclose their policy on how they will discharge their stewardship responsibilities;
  2. have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed;
  3. monitor their investee companies;
  4. establish clear guidelines on when and how they will escalate their stewardship activities;
  5. be willing to act collectively with other investors where appropriate;
  6. have a clear policy on voting and disclosure of voting activity; and
  7. report periodically on their stewardship and voting activities.

How does GSI fulfil its obligations with respect to the Code?

Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.

Guidance

Stewardship activities include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration. Engagement is purposeful dialogue with companies on those matters as well as on issues that are the immediate subject of votes at general meetings.

The policy should disclose how the institutional investor applies stewardship with the aim of enhancing and protecting the value for the ultimate beneficiary or client.

The statement should reflect the institutional investor’s activities within the investment chain, as well as the responsibilities that arise from those activities. In particular, the stewardship responsibilities of those whose primary activities are related to asset ownership may be different from those whose primary activities are related to asset management or other investment-related services.

Where activities are outsourced, the statement should explain how this is compatible with the proper exercise of the institutional investor’s stewardship responsibilities and what steps the investor has taken to ensure that they are carried out in a manner consistent with the approach to stewardship set out in the statement.

The disclosure should describe arrangements for integrating stewardship within the wider investment process.

GSI’s approach

GSI is committed to the principle of good corporate governance. The purpose of this document is to describe how we will discharge our stewardship responsibilities.

As part of our investment process we use research bought from Sustainalytics, a consultancy specialising in the research of companies’ approaches to their environmental, social, and governance (“ESG”) responsibilities. This research is used to as part of our investment process and helps us in deciding whether, and how much, to invest in individual companies.

An overview of the ESG elements used in our investment process can be found on our website at www.gsillp.com.

Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.

Guidance

An institutional investor’s duty is to act in the interests of its clients and/or beneficiaries.

Conflicts of interest will inevitably arise from time to time, which may include when voting on matters affecting a parent company or client.

Institutional investors should put in place, maintain and publicly disclose a policy for identifying and
managing conflicts of interest with the aim of taking all reasonable steps to put the interests of their client or beneficiary first. The policy should also address how matters are handled when the interests of clients or beneficiaries diverge from each other.

GSI’s approach

GSI has a clearly-articulated policy on managing conflicts of interest which forms part of the firm’s policies and procedures. A summary of our policy on managing conflicts of interest can be provided on request from inquiries@gsillp.com.

Should there be occasions where voting proxies present a conflict of interest between GSI, its employees, and one or more of GSI’s clients, GSI and its employees are required to put the interests of their clients first.

Any conflicts arising that are not explicitly covered by our conflicts of interest policy will be referred to the firm’s Compliance Officer.

Principle 3: Institutional investors should monitor their investee companies.

Guidance

Effective monitoring is an essential component of stewardship. It should take place regularly and be
checked periodically for effectiveness.

When monitoring companies, institutional investors should seek to:

  • keep abreast of the company’s performance;
  • keep abreast of developments, both internal and external to the company, that drive the company’s value and risks;
  • satisfy themselves that the company’s leadership is effective;
  • satisfy themselves that the company’s board and committees adhere to the spirit of the UK Corporate Governance Code, including through meetings with the chairman and other board members;
  • consider the quality of the company’s reporting; and
  • attend the General Meetings of companies in which they have a major holding, where appropriate and practicable.

Institutional investors should consider carefully explanations given for departure from the UK Corporate Governance Code and make reasoned judgements in each case. They should give a timely explanation to the company, in writing where appropriate, and be prepared to enter a dialogue if they do not accept the company’s position.

Institutional investors should endeavour to identify at an early stage issues that may result in a significant loss in investment value. If they have concerns, they should seek to ensure that the appropriate members of the investee company’s board or management are made aware. Institutional investors may or may not wish to be made insiders. An institutional investor who may be willing to become an insider should indicate in its stewardship statement the willingness to do so, and the mechanism by which this could be done.

Institutional investors will expect investee companies and their advisers to ensure that information that could affect their ability to deal in the shares of the company concerned is not conveyed to them without their prior agreement.

GSI’s approach

GSI uses research carried out by Sustainalytics to assess how investee companies’ deal with their environmental, social, and governance responsibilities. GSI uses this information to help inform our investment decisions, including whether to remain invested in an individual company.

If GSI believed it would benefit its clients, we would engage directly with the management of an investee company to communicate our concerns and to understand that company’s approach to its ESG responsibilities.

Principle 4: Institutional investors should establish clear guidelines on when and how they will escalate their stewardship activities.

Guidance

Institutional investors should set out the circumstances in which they will actively intervene and regularly assess the outcomes of doing so. Intervention should be considered regardless of whether an active or passive investment policy is followed. In addition, being underweight is not, of itself, a reason for not intervening. Instances when institutional investors may want to intervene include, but are not limited to, when they have concerns about the company’s strategy, performance, governance, remuneration or approach to risks, including those that may arise from social and environmental matters.

Initial discussions should take place on a confidential basis. However, if companies do not respond constructively when institutional investors intervene, then institutional investors should consider whether to escalate their action, for example, by:

  • holding additional meetings with management specifically to discuss concerns;
  • expressing concerns through the company’s advisers;
  • meeting with the chairman or other board members;
  • intervening jointly with other institutions on particular issues;
  • making a public statement in advance of General Meetings;
  • submitting resolutions and speaking at General Meetings; and
  • requisitioning a General Meeting, in some cases proposing to change board membership.

GSI’s approach

There may be circumstances where GSI considers it to be in our clients’ best interests to raise concerns with the management of an investee company. In those circumstances, GSI will communicate with the management of the company, or its advisers, to raise our concerns.

If we are not satisfied with a company’s response, we will consider escalating our actions, which may include requesting or instigating the following:

  • additional meetings with management specifically to discuss concerns;
  • expressing concerns through the company’s advisers;
  • meeting with the chairman or other board members;
  • intervening jointly with other institutions on particular issues;
  • making a public statement in advance of General Meetings;
  • submitting resolutions and speaking at General Meetings; and
  • requisitioning a General Meeting, in some cases proposing to change board membership.

Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate.

Guidance

At times collaboration with other investors may be the most effective way to engage.

Collective engagement may be most appropriate at times of significant corporate or wider economic
stress, or when the risks posed threaten to destroy significant value.

Institutional investors should disclose their policy on collective engagement, which should indicate their readiness to work with other investors through formal and informal groups when this is necessary to achieve their objectives and ensure companies are aware of concerns. The disclosure should also indicate the kinds of circumstances in which the institutional investor would consider participating in collective engagement.

GSI’s approach

GSI fully agrees with collective engagement in circumstances where our clients’ objectives coincide with those of other interested parties.

There are several investment associations where collective engagement is facilitated, and these can be useful in coordinating meetings and subsequent agreed action.

When appropriate and in our clients’ best interests, GSI will participate in collective engagement.

Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity.

Guidance

Institutional investors should seek to vote all shares held. They should not automatically support the
board.

If they have been unable to reach a satisfactory outcome through active dialogue, then they should register an abstention or vote against the resolution. In both instances, it is good practice to inform the company in advance of their intention and the reasons why.

Institutional investors should disclose publicly voting records.

Institutional investors should disclose the use made, if any, of proxy voting or other voting advisory services. They should describe the scope of such services, identify the providers and disclose the extent to which they follow, rely upon or use recommendations made by such services.

Institutional investors should disclose their approach to stock lending and recalling lent stock.

GSI’s approach

GSI’s approach to voting proxies is laid out in our Proxy Voting Policy, which can be found on our website at www.gsillp.com.

When voting, GSI will consider what is in the best interests of our clients. For example, our voting policies generally oppose increases in management control that come at the expense of shareholders.

GSI will generally abstain from voting when we consider not voting to be in the best interests of our clients. If we vote, we will publish a summary of our voting on our website.

Principle 7: Institutional investors should report periodically on their stewardship and voting activities

Guidance

Institutional investors should maintain a clear record of their stewardship activities.

Asset managers should regularly account to their clients or beneficiaries as to how they have discharged their responsibilities. Such reports will be likely to comprise qualitative as well as quantitative information. The information reported, and the format used, should be a matter for agreement between agents and their principals.

Asset owners should report at least annually to those to whom they are accountable on their stewardship policy and its execution.

Transparency is an important feature of effective stewardship. Institutional investors should not, however, be expected to make disclosures that might be counterproductive. Confidentiality in specific situations may well be crucial to achieving a positive outcome.

Asset managers that sign up to this Code should obtain an independent opinion on their engagement and voting processes having regard to an international standard or a UK framework such as AAF 01/062. The existence of such assurance reporting should be publicly disclosed. If requested, clients should be provided access to such assurance reports.

GSI’s approach

GSI maintains clear records of its stewardship activities. All stewardship activities are reported to the firm’s Compliance Committee.

GSI complies with its client reporting requirements with regards to its stewardship activities.