UK Stewardship Code

Introduction

The UK Stewardship Code, published by the Financial Reporting Council (FRC) in July 2010, is a voluntary code which sets out a number of principles relating to engagement by investors with UK equity issuers. It sets stewardship standards for those investing money on behalf of UK clients and those that support them, with the aim of enhancing the quality of engagement between institutional investors and companies so as to help improve long‐term returns to shareholders and the efficient exercise of governance responsibilities.

The code applies to:

• Asset owners such as pension schemes, foundations, endowments and sovereign wealth funds.
• Asset managers who manage assets on behalf of UK clients or invest in UK assets.
• Service providers such as investment consultants, advisors, data and research providers who support asset owners and asset managers to exercise their stewardship responsibilities.

The principles of the Code are that 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 and this policy should be publicly disclosed.
3. Monitor their investee companies.
4. Establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
5. Be willing to act collectively with other investors where appropriate.
6. Have a clear policy on voting and disclosure of voting activity.
7. Report periodically on their stewardship and voting activities.

The Code is designed to be applied by firms on a ‘comply or explain’ basis and the FRC recognises that not all parts of the Code will be relevant to all institutional investors and some of its principles and guidance may be judged to be disproportionate for smaller institutions.

Argonaut Capital LLP (‘Argonaut’) pursues a fundamental investment strategy across a variety of jurisdictions globally with a core focus on Europe, including UK equities. A consistent approach is taken to engagement with issuers and their management across all jurisdictions in which the firm invests. In this context, Argonaut does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction. Similarly, elements of Argonaut’s investment strategy make it difficult to formally engage with investee companies through voting rights. Thus, while Argonaut is supportive of the objectives that underlie the Code it is not currently a formal signatory to the Code. We do however naturally adhere to many of the principles of the Code.

As an FCA-regulated firm and per rule 2.2.3 of the Financial Conduct Authority’s (“FCA”) Conduct of Business Sourcebook, Argonaut Capital Partners LLP (‘Argonaut’) sets out below its statement of compliance in relation to the seven principles of the Code. 

For further information on Argonaut’s approach please contact Rory Sheward – rory.sheward@argocap.co.uk

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

We regard good stewardship as the responsible allocation, management and oversight of capital to create long-term value for clients and other beneficiaries. We see this as intrinsically linked to our fiduciary duty which is to preserve and enhance the value of our client’s capital within our specified risk framework and the regulatory regime within which we operate. We believe the optimal form of stewardship combines responsible management and allocation of resources in a manner that does not compromise or conflict with our ability to effectively act in the best interests of clients as defined in the FCA’s Conduct of Business Sourcebook (‘Best interests’ rule’ in COBS 2.1).

We are supportive of many of the objectives that underlie the UK Stewardship Code yet we are mindful of the need, in practice, to always retain a core focus on our fiduciary obligations as outlined in COBS 2.1 when discharging our stewardship responsibilities.

Argonaut may therefore vote on securities where it believes such voting to be in the best interests of its clients. So, while procedures for proxy voting exist these are not necessarily always exercised. Voting is assessed on case-by-case basis always with client interests in mind.

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

Argonaut maintains a robust approach to managing conflicts of interest with a detailed policy, in accordance with existing FCA regulations, designed to identify, prevent or manage any and all such conflicts that may arise in the course of its business. This policy includes but is not limited to Personal Account Dealing, Client Order Handling, Best Execution, and Use of Dealing Commissions. It is the responsibility of all Argonaut staff members to familiarise themselves with the contents of this Policy and report conflicts of interest to the Compliance Officer using the relevant channels.

Conflicts of interest can be either ‘potential’ or ‘actual’ and Argonaut will assess all conflicts accordingly. All decisions are taken wholly in the interest of clients and Argonaut aims to ensure that all conflicts (both potential and actual) are identified, managed and recorded.

Argonaut’s conflict of interest policy is available on request.

Principle 3 – Institutional investors should monitor their investee companies

Primary research on listed businesses and continuous monitoring of investee companies is a key part of Argonaut’s investment process. A variety of research and support tools are utilised to help meet this principle and the investee company monitoring process will typically include meeting with senior management figures, analysing annual reports and financial statements, using independent third party and broker research and attending company meetings. Argonaut’s CIO Barry Norris’ work as a European equity specialist for almost twenty-five years represents unique experience in the company monitoring process. That he has met with hundreds of European corporate management teams in this period provides unique insight into the monitoring process.

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

Argonaut retains discretion over how and when it may escalate its activities in respect of intervention. Active intervention may take place if Argonaut believes this course of action to be in the best interests of its clients though typically, in the event that confidence in the management of an investee company is lost, the investment will be divested.

On the long side, Argonaut seeks to invest in companies that it believes to be well managed and, as part of the research and monitoring process, Argonaut may well express concerns or express its views to company management and/or directors in meetings or via other channels. Any concerns or views expressed will generally be motivated by the perceived failure of management to uphold shareholder value. 

The approach taken to escalate concerns to protect and enhance shareholder value will vary on a case-by-case basis.

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

Argonaut is supportive of collective action by investors if it can protect and/or enhance shareholder value. Thus, where legally permissible and if deemed to be in the best interests of clients and consistent with company strategy, Argonaut is willing to work collectively with other investors to protect and/or enhance shareholder value. Argonaut will determine on a case-by-case basis whether such collaboration is in the best interests of its clients.

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

Argonaut’s policy is to exercise voting rights where it believes it is in the best interests of the underlying clients for such rights to be exercised, with the primary aim of enhancing the total return of the assets it manages for those clients. Argonaut’s voting record is available to its clients either directly from Argonaut or via its custodian. Argonaut does not publicly disclose voting records as it believes such information is confidential to its clients. 

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

Upon request, Argonaut will happily provide to its Clients any details of how Argonaut voted on their behalf on any particular proxy, in a format agreed with each client.