Pension funds may rank fund managers on activism

LONDON (Reuters) - Britain’s pension funds are weighing up plans to rank fund managers based on their efforts to improve performance at the companies they back, in the latest sign of institutional investors flexing their muscles.

Umbrella body The National Association of Pension Funds is leading a campaign to develop a framework that would rate fund managers according to their work towards, for example, improving governance at companies.

Pension funds own billions of pounds of assets which they outsource to fund managers, which manage them on their behalf.

The framework is based on the “2020 Stewardship” report by a group of six institutional investors including some of Britain’s largest pension schemes such as the Universities Superannuation Scheme and Railpen.

Talks with the NAPF, whose members represent some 800 billion pounds ($1.3 trillion) in assets, revolve around a matrix system, grading asset managers based on how much or how little they do on the governance front.

Although details are still being worked out, the framework is likely to be publicly accessible online.

In the immediate aftermath of the financial crisis, pension funds were accused of not demanding greater accountability - through their fund managers - from companies they invest in, especially banks.

But recent high-profile shareholder challenges - dubbed the shareholder spring - and a raft of recent measures aimed at improving governance standards such as the Stewardship Code and the Kay Report on short termism in equity markets have signalled a shift in attitudes towards improved corporate governance.

“The basic idea behind this initiative is to help asset owners evaluate asset managers on different dimensions of stewardship activity,” said Simon Wong, a partner at activist investment firm Governance for Owners.

“Often, asset managers describe their activities in broad terms and asset owners could benefit from such a framework so that they are better equipped to then look how various asset managers are doing on things ranging from voting, to engagement to policy.”

At the moment, the only way pension funds can access what a fund manager is doing on corporate governance is through information provided on individual fund manager websites.

A spokesman from the NAPF added: “We believe it is important that pension funds hold their managers to account for their stewardship responsibilities and are looking at a number of ways in which we can assist our members in that regard.”

($1 = 0.6241 British pounds)

Reporting by Raji Menon; Editing by Mark Potter