M & L Capital Management Limited (“MLCM”) is an independent asset management firm, which specialises in running global equity and property portfolios.
Ownership and the UK Stewardship Code
The UK Stewardship Code is overseen and published by the Financial Reporting Council, the independent regulator overseeing financial reporting, accounting and auditing and corporate governance . The Code, first published in 2010, sets the benchmark in the UK for institutional investors to meet ownership obligations in respect of their holdings of UK equities.
Principle 1: Policy on operation of stewardship responsibilities
MLCM manages client assets with the objective of generating returns consistent with clients’ objectives. It is therefore central to the Firm’s investment process to consider each company’s ability to create, sustain and protect value. It is essential to question and challenge companies about issues that the Firm perceive may affect their value. Engagement and actively voting the shares it manages on behalf of clients should therefore be seen as integral to its equity investment process.
MLCM will engage and vote on any issue affecting the long-term sustainable value of a company in which it is invested. Issues may include, but are not limited to, business strategy, performance, financing and capital allocation, management, acquisitions and disposals, operations, internal controls, risk management, the membership and composition of governing bodies/boards and committees, sustainability, governance, remuneration, environmental and social responsibility.
MLCM’s resources used for each engagement with a company will be managed according to the circumstances and potential impact of each case. Where the holding in funds controlled and voted by MLCM is a small fraction of a company’s capital, there will be generally proportionately less resource applied to engagement, as shareholders with a minimal holding of a company’s share capital are unlikely to have a material influence.
Intervention will generally begin with a process of enhancing the Firm’s understanding of the company and helping the company to understand the Firm’s position. The extent to which MLCM would expect to effect change will depend on the specific situation. MLCM’s focus will be on issues material to the value of the company’s shares.
Principle 2: Conflicts of interest
Asset management is MLCM’s only business. Even so, it is possible that situations may arise that would lead to concerns over possible conflicts of interest. Such considerations are included in and covered by the Firm’s Conflicts of Interest Policy.
In a stewardship, engagement and proxy voting context, where potential conflicts of interest may arise, for instance where we are investors in a company that is associated with a client, we adhere to the following procedure:
The overriding test at each stage of this process is that the approach and actions taken must be in the interests of those clients on whose behalf they are being taken and consistent with our TCF (‘treating customers fairly’) obligations.
Principle 3: Monitoring
Typically, monitoring by the Portfolio Managers (supported by MLCM’s mid office team who are responsible for monitoring corporate actions and related deadlines) will occur around financial reporting, general meetings, in connection with news and announcements and when, for whatever reason, MLCM might be conducting research into investment ideas or reviewing holdings.
The extent and frequency of monitoring will be partly dependent on the type of investment: a large percentage holding selected by detailed analysis will be monitored more frequently and in greater depth, for example, than a small percentage holding.
The issues covered in monitoring any company will include those identified under principle 1 above as the issues with which we may engage with any company.
MLCM generally supports the management of the companies in which it invests. Where proposals are not consistent with the interests of shareholders MLCM will vote against resolutions. The Firm may abstain where mitigating circumstances apply, for example where a company has taken steps to address shareholder issues.
As an active fund manager acting in the best interests of our clients, it will be understood that MLCM is reluctant to be in receipt of price sensitive information from companies or their advisers. Receiving such information places the Firm inside and therefore unable to trade shares in the stock(s) concerned. Much of the value created for clients arises from active stock selection and therefore MLCM must retain the ability to trade. In exceptional cases, however, the Firm may agree to be taken inside for a temporary period only.
The Firm rarely attends company general meetings in person – there are usually more effective means of communicating with and offering support to companies.
Principle 4: Implementation
Engagement, if required or appropriate, will be conducted through meetings with company management. It may include further contact with executives, meeting or otherwise communicating with non-executive directors or the chairman, voting, communicating via the company’s advisers, submitting resolutions at general meetings or requisitioning extraordinary general meetings. MLCM may conduct these additional engagements in connection with specific issues or as part of the general, regular contact with companies.
If there are issues relating to the company which the executives of a company cannot answer, alternative methods, depending on the issue, may be employed.
Principle 5: Working with other shareholders
There are rare occasions when it may be better to work with other shareholders to effect change. This may involve sharing views and ideas with other institutions. It may also involve meeting companies jointly with other shareholders or using the services of third-party membership organisations or other collaborative or informal groups.
Principles 6 & 7: Voting & Reporting
It is the policy of MLCMs’ UK equity business to vote all shares at all meetings except where there are onerous restrictions – for example, where trading is restricted prior to a meeting in shares committed to vote (share blocking), we will usually only vote where the benefit of voting outweighs the benefit of the ability to trade.