Financial Reporting Council in transparency drive

15th November 2016

In an interesting move towards greater fund management industry transparency and echoing similar calls from the Prime Minister, the Financial Reporting Council announced yesterday a tiering system of fund managers based on how they report on their Stewardship Code responsibilities.

Fund managers will be assessed based on whether they actively vote on governance issues such as pay or independence of the board, and based on their research so far, the FRC has published an initial tiered list which can be found here.

This should bring more transparency to how asset owners are able to assess the fund managers they work with and the emphasis they place on stewardship – something that should benefit everyone. The FRC has also stated that anyone who, within the new tiering system, is placed at tier 3 and does not make improvements within 6 months, will be removed from the Stewardship Code.

This is clearly a positive step towards promoting investor stewardship, but at the same time, it does not mean that tier 1 is where all managers need to be. The fact that their approach to the Stewardship Code is made explicit is the key benefit. In the current list for example, we can see quite a few hedge funds in tier 3, who are often quite happy to leave stewardship responsibilities to larger, more established managers, and take an active approach to their holdings in other ways. This move from the FRC makes it possible for asset owners to make an informed decision on the level of engagement they expect from their manager, and to select accordingly.

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