Responsible Investor

equity companies definitely hold on to their assets for longer than ten months.
Responible Investor: Do you think private equity managers have improvements to make in transparency?
David Russell: Private equity fund managers have realised that there is an issue with how they communicate their activities to both their investors and the market at large. Hopefully the outcome of the Walker consultation (UK review on private equity which reported in July) will lead to a much more transparent industry.
Responible Investor: USS has a large amount of assets in passive investments. Can you still engage with companies on that basis and do you ever engage with companies where you are underweight in your investment positions?
David Russell; USS’ view on passive investments is that because we cannot sell the companies we have a responsibility to be interested in how those companies are managed. So yes, we will engage with companies in our passive portfolio even if they are not held by our active fund managers.
Responible Investor: The fund has a number of investments overseas in emerging markets. Is that problematic for you as a pension fund in engaging with those companies?
David Russell USS is increasing its investments in alternative markets, particularly in South America, Asia and Eastern Europe. Access is an issue and there is far less information about the companies in those markets, particularly on governance and CSR issues, than you would see in developed markets.

What USS tries to do is to work with people with local knowledge in those markets. In Asia, for example, we are members of ASrIA and the Asian Corporate Governance Association.

Responible Investor: You’ve been instrumental in the work of the EAI. What has it achieved so far and where has it encountered problems?

David Russell: We’ve seen a significant amount of research being developed by the mainstream sell-side and an increasingly large number of independent providers who are incorporating extra financial issues into their research. As well as the EAI we are encouraging the sell-side in this market to develop the research they are doing to cover corporate governance and environmental and social issues within their mainstream research.

Responible Investor: The EAI report which came out recently identified a number of areas where progress has not been so good. What were they?

David Russell: Undoubtedly the strongest area of the mainstream sell-side has been climate change and particularly the cost of carbon. Because carbon now has a price it has been much easier for the sell-side to incorporate that into their investment models, particularly for untilities and some of the really high impact sectors. What we are not seeing is research into more difficult areas: for example human capital management or M&A activity, wghere the the sell-side and independent providers are simply not providing that level of information.
I think that in the future we will see a broader

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