Investor engagement services see post-crisis boom

Fri Jun 25, 2010 2:43pm IST

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* Fund firms see assets under advice nearly double

* Strong interest from pension fund clients after crisis

* Investors keen to engage as good owners

By Raji Menon

LONDON, June 25 (Reuters) - Fund firms offering shareholder engagement services have seen assets spike over the past year on soaring pension fund demand for increased scrutiny of company boards, fund managers said.

These services liaise with companies to improve long-term business performance based on good governance principles and aim to counter perceptions that investors have given companies too much of a free ride.

Hermes EOS, the shareholder engagement service owned by the BT Pension Scheme (BT.L), has seen an almost 50 percent rise in clients since 2009, with assets under advice jumping to 65 billion pounds ($97 billion) from around 40 billion last year.

"We are definitely seeing much more interest in these services," Hermes Chief Executive Rupert Clarke told Reuters.

"With the upset and turmoil in the financial markets and with some of the questions over the behaviour of banks and with behaviour of shareholders in quoted companies, more and more long-term investors are establishing how they can best be seen to be engaging their assets as good long-term owners."

British fund firm F&C FCAM.L said it has also seen strong interest in its responsible engagement overlay (Reo) service, while British boutique firm Governance for Owners (GO) said clients in its voting and engagement service had more than doubled.

Offerings like EOS and Reo allow end-investors effectively to outsource the in-depth oversight of corporate governance and address concerns sparked by their perceived docility before and during the credit crisis.

"The examination of shareholder oversight of boards in the aftermath of the global financial crisis showed that investors did not do enough in scrutinising boards and management," said Simon Wong, managing director at GO.

"That has led to initiatives such as the Stewardship Code in the UK which in turn has brought about a greater interest in engagement," he said.

The Stewardship Code, due to be published shortly, is the official code of investor rules in Britain.

LONG-TERM STEWARDSHIP

Colin Melvin, chief executive of Hermes EOS, said the service was seeing strong interest from British corporate schemes. It currently offers the service to Royal Dutch Shell (RDSa.L) both in Britain and the Netherlands and BAE (BAES.L).

He added that EOS had just added its twentieth client - the Australian super fund for health and community workers, Hesta.

F&C said strong investor demand for its Reo service from pension funds after the crisis had seen its assets under advice for third parties jump from 37.1 billion pounds at the end June 2009 to around 56.4 billion now.

"The financial crisis was certainly a trigger as is the fact that the spotlight for fiduciary responsibility for long-term stewardship is falling firmly on pension funds and their trustees," said George Dallas, F&C's director of corporate governance.

"Given the fact that the social, ethical, environmental and governance issues that we engage companies on focus on long-term issues, many of our clients are recognising that this is one way that they can exert their rights as investors to ensure that companies appropriately address these longer-term risks." (Editing by Michael Shields) ($1 = 0.6680 pound)

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