UK pension funds & governance – more oversight?

In response to the widespread criticism from government and media over the role of investors in the financial crisis, the UK’s National Association of Pension Funds (NAPF) has released research which show that just under half  (49%) of its bigger pension scheme members will spend more time scrutinising the actions of their fund managers on engagement issues.

Over three quarters of funds (78%) said they will give more time to reviewing reporting and 57% said they will pay more attention to votes cast. The survey examined the engagement policies and practices of pension schemes with assets totaling nearly £200 billion although, unlike the TUC’s recent voting trends survey, the report does not disclose which funds of what type participated in the survey.

NAPF Head of Corporate Governance, David Paterson said: “Corporate Governance is in the spotlight more than ever before and our survey demonstrates that pension funds are increasing their focus on engagement policies. They have an inherent interest in the companies in which they invest being run well given their long-term objective of being able to meet the pension promises of their members.”

Responding to accusations of governance taking a low priority for pension funds, Paterson conceded that “there is more work to be done to ensure that pension funds improve the effectiveness of their oversight of both their investment managers and the companies in which they invest.'”

Other key findings from the survey include:

  • Pension schemes engage both indirectly and directly with the companies in which they investment. 93% carry out some engagement tasks via delegation to invest managers while 44% of schemes have a policy of direct engagement with the companies in which they invest.
  • Most pension schemes (70%) consider their engagement policies as having a tangible effect on corporate governance.
  • The use of the Institutional Shareholders’ Committee Principles is increasing – 51% of schemes stated that the principles had been incorporated into their contracts with investment managers, an increase from 33% in 2008.
  • Schemes face barriers to greater levels of engagement, nearly two-thirds (62%) of respondents said that competing work priorities acted as a barrier to direct engagement, while 59% said that lack of relevant skills was an issue.
Whether these commitments will be enough to stave off further government intervention and regulation remains to be seen and incoming chairman Lyndsay Tomlinson will have his work cut out.

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