A stubborn lack of purpose
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Blogging is new to me, but I welcome the opportunity to set down some thoughts, observations and views on different aspects of the LGPS investment world. I’ll do my very best to stay away from actuarial and benefit matters – since I know next to nothing about them. I know a handicap of that nature hasn’t stopped people opining on them in the past, but it will stop me.
Peter Findlay has kindly asked me to contribute to the Room151 site via this blog, and I’m happy to do so, but what topic should I start with? Framework Agreements? The wonderful world of investment consultancy? Pension committee governance? Elected Member training? Asset manager fees? So many topics to choose from…however, as we’re in UK company voting season, why not start there?
I’m writing this sitting on a train travelling to Scotland, part concentrating on this article, part winding up my girlfriend, who has just accused me of having a ‘stubborn lack of purpose’. I liked that phrase, as it could apply to many aspects of the pensions world as well as myself, but it does make me think of the current system used to transmit votes from investors to registrars.
Paul Myners looked at the impediments to voting back in 2004/2005 with the Shareholders Voting Working Group, and made comments about the ‘leaky plumbing’ of the voting process. Back then, the use of manual proxy cards was the predominant way of voting in the UK. Whilst time has moved on, and UK shares have become ‘dematerialised’, i.e. holdings are registered electronically rather than via share certificates, the advent of such electronic registration has not necessarily made things easier.
I know a little bit about pension fund custody, and I know that most custodians prefer to keep client assets in ‘omnibus’ accounts where possible – which means many individual client holdings of, say, Vodafone shares, are held together under one nominee name. Whilst such an approach may be operationally efficient for the custodians, it doesn’t help clients when it comes to voting – it’s very difficult to tally all of the different voting intentions and provide an accurate and timely instruction to the registrars. If an omnibus holding is overvoted, the whole instruction is rejected. Doesn’t sound like a great system to me.
It would be relatively easy for me to just have a go at the custodians, but they’re not the only guilty party here. What about the registrars? No obligation to report back to investors as to whether their votes were received in time, or indeed how the vote went. What about asset managers? What about pension funds? Do you care about the integrity and efficiency of the process, or merely the outcomes, such as the ‘Shareholder Spring’ headlines?
I say the plumbing has leaked for long enough – it’s time to finally fix it. Will it take much? I don’t think so, but I’d welcome someone proving me wrong, since it seems no one really cares about this ongoing deficiency in the voting process. What is important is that, the odd financial meltdown aside, the solving of this problem is long overdue. Surely we can put our heads together and fix this, so that investors can have faith in the process, can benefit from having an audited trail from start to finish of the voting process, and enjoy the end result of being fully engaged investors.
If anyone wants to help move this forward – be it a custodian, asset manager, pension fund or someone with the ear of registrars – you know where I am!
David Crum spent 11 years working in the LGPS for the Lothian and Strathclyde Pension Funds, and 5 years as an investment consultant with Aon Hewitt. He is now the founding Director of 330 Consulting Limited
