The Financial Reporting Council (FRC), the UK watchdog, released on Monday a two-tier system to classify asset owners according to the way they report on compliance with the UK Stewardship Code – with some big names such as a Parliamentary pension fund rated in the second tier.
The FRC is only ranking investors who have signed up to the code, which was launched in 2010.
Among the asset owners classified as being in tier-two are: Merseyside Pension Fund, Methodist Ministers Pension Scheme, the Parliamentary Contributory Pension Fund (PCPF), Pension and Assurance Scheme for Lay Employees of the Methodist Church, Société Générale UK Defined Benefit Pension Scheme, the Council of Lutheran Churches, United Reformed Church – Wessex Synod and the West Midlands Pension Fund.
Tier one asset owners include leading funds such as the Ontario Teachers’ Pension Plan, the Pension Protection Fund, Railpen, USS, the Barclays Bank UK Retirement Fund and the BBC Pension Trust Ltd, to name a few.
PCFP Trustee John Sills was not immediately able to comment. Owen Thorne, investment officer of the Merseyside Pension Fund, told RI that the fund intends to update it statement of commitment to the FRC code.
Thorne said the fund aspires to reach tier one of the asset owner bloc and added that eight out of 10 of the asset managers they employ feature on the FRC’s first tier, which covers approximately 47 % of the overall fund’s assets.
The UK regulator categorised asset managers (of those 200 that have officially committed to the code) in three tiers, with those in the third having to make substantial improvement in order to climb to the second tier.If asset managers don’t show improvement against the seven principles of the Stewardship Code in six months, their names will be removed from the list.
In the third tier for asset managers are names such as Franklin Templeton Investments, Miton Group, Nestlé Capital Management and Osmosis Investment Management. There is also a tiering system for service providers, with all 11 in tier one.
When it comes to asset owners, however, there are only two tiers. David Styles, FRC corporate governance director, explained to RI that this is because the code was originally designed by and for asset managers who are carrying out stewardship duties.
“Of course, there are grey areas: some asset owners are asset managers as well. They will be carrying out asset manager functions in-house, although they are also asset owners.”
Nonetheless, Styles explained, the seven principles of the code don’t apply quite in the same way to asset owners.
The FRC says tiering “distinguishes between signatories who report well and display their commitment to stewardship”.
Asked whether it is a source of concern for an asset owner to remain indefinitely in the second tier, Styles said that this is a matter for the market to decide:
“Tier one indicates a good level of reporting and tier two an acceptable one. It’s for asset owners, their clients and beneficiaries to look at the information available out there. And it’s up to clients and beneficiaries to decide how to use it.”
Styles continued: “If asset owners want to improve, they can get in touch with us and we can discuss with them how they can do that.” Link