Star fund manager Woodford sceptical on Kay’s investor forum proposal

Getting investors together “like herding cats”

Neil Woodford, one of the leading investment industry figures in the UK as Head of UK Equities at retail investment giant Invesco Perpetual, has told a Parliamentary committee that he doubts the proposed investor forum to boost engagement will be effective in isolation.

The proposed panel is one of the main recommendations to come out of the government-backed Kay Review, though institutional investors are split on how useful it could be, given the failure of similar initiatives in the past.

“On its own I don’t think it will achieve very much,” Woodford told MPs at a hearing in Westminster today.

“Investors aren’t good at getting together, it’s like herding cats. In fact it’s difficult to get investors to meet on any subject.” Woodford, arguably one of the most well known fund managers in the country, said a lot of other things would need to happen before a forum was effective.
He was speaking at the Business, Innovation and Skills Committee’s inquiry into the Kay Review.

“Most fund managers don’t act like owners, they don’t think like owners,” Woodford told the panel chaired by opposition Labour MP Adrian Bailey. With all the focus on executive pay, there was a “lack of involvement” by institutional investors in broader corporate issues such as strategy and capital allocation. In most engagements he was typically on his own, he said. There was a “disproportionate focus” on voting at AGMs, given that corporate engagement is long-term and not obvious. Woodford holds stocks for an average of 12-16 years, meaning he is likely to see three different CEOs come and go at a portfolio company. “We are the longevity here,” he said.The session also focused on the lack of demand for stewardship. Aviva Investors’ Governance Advisor Anita Skipper said that, with notable exceptions, a lot of pension funds don’t know really know about it at all.

Her colleague, Chief Responsible Investment Officer Steve Waygood, said that while questions are asked about stewardship at the Request for Information stage, there is virtually no follow-up from institutional clients once mangers are appointed. “It’s almost a housekeeping exercise, it’s not treated substantially.”

He pointed out that the Kay Review is about the supply of, not demand for, stewardship. Demand could be stimulated by requiring pension funds to embrace the Stewardship Code on a comply or explain basis. Investment consultants also had a duty of care to raise the issue. The “active informed demand” for stewardship was missing, a function of poor financial literacy.

He suggested part of the problem was the lack of ways to measure stewardship, adding that elements from the UN PRI’s annual assessment could be harnessed to gauge engagement and voting: “Kay does not look at how you measure stewardship. You manage what you measure.”

The meeting took place as the National Association of Pension Funds rejected a charge from the Labour Party’s new Cox Review that shareholders aren’t playing an “active and continuous” ‘stewardship’ role as evidenced by the explosion in executive pay.

The NAPF said: “Our evidence encouragingly shows that pension funds are increasingly stepping up to their responsibilities and are beginning to foster a market for stewardship amongst the asset management community.”