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Fund manager engagement on the increase

Fund managers have increased their engagement with companies in which they invest over the past five years, according to the Investment Management Associations (IMA) fifth Fund Managers Engagement Survey (PDF).

However, the IMAs chief executive said the financial crisis had highlighted the need for even greater engagement and scrutiny.

The survey asked firms about their interactions with companies over particular contentious questions and found that in 2008, 21 firms held a total of 59 separate meetings with Royal Bank of Scotland about its rights issues.

In the same year, 14 firms held 28 meetings with Bradford & Bingley about its financing.

More broadly, the majority of investment management firms were found to have policy statements on engagement, commitments on engagement in their client agreements and a dedicated resource which is regularly reviewed, as the Institutional Shareholders Committee (ISC) recommends.

Firms voted on about 95% of resolutions brought by companies, and voted against 3.3% of them in 2008 and 3.8% in 2007. This represented a rise in votes against resolutions, after no rates of 1.8% in 2006 and 3% in 2004.

Meanwhile firms took diverging approaches to the same questions, the report says, with investment managing firms voting different ways on the majority of votes. Results also indicated that with controversial questions, engagement before a vote could prove effective.

In a statement, Richard Saunders, the chief executive of the IMA, said: The survey demonstrates a widespread commitment among fund managers to engagement and transparency it reveals for the first time the extent of the activity which goes on with individual companies, much of which takes place in private.

However, it is also very apparent that corporate governance failings in banks, and the unwillingness of bank boards to engage with investors in scrutiny and challenge of strategy, were factors that contributed to the crisis. There are lessons for both boards and investors from this experience, which is why we are now engaged with our ISC colleagues in a review of the framework.

The survey covered 32 firms managing 321 billion of British equities or 68% of all British equities managed over the two years ending on June 30, 2008.


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