Pension schemes clash with asset managers over voting rights

Fund managers in the UK are reportedly failing to implement the voting policies of pension fund trustees whose assets are held in pooled investments.

The clash over voting is creating an untenable situation about who should direct voting policies, according to a pension fund association.

Although there are significant operational barriers for fund managers when it comes to pooled funds that account for 40% of UK assets invested by pension funds, a report from the Association of Member Nominated Trustees (AMNT) says that they are not insurmountable and many of the problems stem from a lack of will among fund managers.

“Put simply, asset owners’ policies could be implemented by fund managers if there was the will to do so,” AMNT states.

The lack of transparency and over-complexity in the voting chain has long been a problem for all involved, especially for assets held in so-called omnibus or pooled funds. But the issue has become more critical given the rise in regulatory obligations for pension fund trustees and a need to demonstrate voting records as part of their ESG policies. 

The AMNT report, ‘Bringing shareholder voting into the 21st century’, says the voting system needs urgent reform through more investment in technology and a simplification of the voting chain.

Asset owners also need more support from fund managers and investment consultants in order to be more proactive in their stewardship, something which AMNT states has been “sadly lacking”.

The report recommends that, in the short-term, asset owners develop their own voting policies on ESG issues which they can then benchmark against fund managers’ own policies and hold them accountable. If they do not get the necessary support, they should consider changing advisers, warns the AMNT.

In the longer-term, the AMNT plans to set up an industry working group led by the UK government’s Department for Work and Pensions. 

“This is an untenable situation that requires immediate attention especially given the new, greater regulatory obligations placed upon trustees,” said AMNT founding co-chair Janice Turner. “Power needs to shift from fund managers to pension funds, and I am confident that the proposed working group can help to make this a reality”.

The initiative has the backing of the minister for pensions and financial inclusion, Guy Obberman, who said: “I agree on the recommendation for a working group to develop solutions that will unlock further progress on stewardship and engagement. I am determined we are going to bring about real change on this issue.”

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