All investment firms in the UK have a duty to ensure that they invest clients’ monies responsibly and carry out thorough due diligence to ensure that the companies they invest in on your behalf are focused on delivering long-term returns for shareholders. To build a framework and common approach to encourage better practice, the Financial Reporting Council (FRC) issued a set of principles known as the UK Stewardship Code. For more information, please visit the FRC website (https://www.frc.org.uk).
The UK Stewardship Code is a set of principles which aims to enhance the quality of engagement between institutional investors and investee companies to help improve long-term returns to shareholders and to promote the efficient exercise of governance responsibilities.
Since December 2010, UK-authorised Asset Managers are required under the FCA’s Conduct of Business Rules to produce a statement of commitment to the Stewardship Code or explain why it is not appropriate to their business model.
Metropolis Capital and the UK Stewardship Code
Metropolis Capital, which acts as investment manager to the Metropolis Valuefund, agrees with and supports the principles outlined in the code and through our policy set out below, we aim to provide a clear framework for how we exercise our ownership responsibilities, how we monitor the companies we invest in and how we engage with companies when we have identified an issue which we feel could impact long-term returns for our investors.
Principle 1: UK Stewardship Code Disclosure
The first principle of the code is that Institutional investors should publicly disclose their policy on how they will fulfil their stewardship responsibilities. The Metropolis Capital stewardship policy is publicly available on our website www.metropoliscapital.co.uk. This policy is reviewed at least on an annual basis or more frequently as needed. Detailed reports on our UK Stewardship activities and voting records are available to our investors.
Principle 2: Manage Potential Conflicts of Interest
As a company, we are focused on the execution of a single ‘high conviction’ investment strategy. We are independently owned by our fund managers, who hold 100% of their listed equity exposure via one of the funds which they manage. We believe this structure eliminates a large number of inherent conflicts experienced by many fund management firms and aligns our interest more closely with our investors.
We also have a clear conflict of interest policy, which sets out how we manage any potential conflicts of interest and we train our staff to always look out for potential conflicts. Although unlikely, due to our structure, we monitor and assess all potential conflicts on a ‘risk based’ approach, looking at each interaction to establish any potential risks and ensuring that appropriate mitigation is put in place where necessary.
We only use brokers for execution and we review their own best execution policies before entering into a formal relationship. We do not use them for research; our investment research is carried out 100% in-house. We undertake extensive due diligence on the companies in which we invest and place significant emphasis on downside protection and risk mitigation.
Personal Account (PA) dealing by the investment team is not permitted, other than to invest in the Metropolis Valuefund, which requires pre-approval. Any trades placed into the Metropolis Valuefund by staff members are pre-cleared with the Compliance Officer.
Our compliance policies are reviewed on an annual basis by an independent compliance specialist firm.
Principle 3: Monitoring of Investee Companies
We maintain a concentrated portfolio, typically consisting of up to 25 companies at any one time. Prior to investment in any company, the managers and analysts engage in extensive research and due diligence, to develop a robust long-term view of the future cashflow generating capability of the business. A critical step in the appraisal of the quality of the business is a rigorous assessment of management’s track record of corporate governance and evidence of strong alignment with shareholders.
Once invested, we put in place a rigorous investee monitoring program. We review all information flow with respect to each investee company and make an assessment as to whether this impacts our view of the long-term quality or valuation of the business. As part of this ongoing review, we monitor strategy, business performance, capital structure, corporate governance and management capability and alignment with shareholders.
If we receive new information, which undermines our view of the standards of corporate governance or levels of shareholder capital stewardship within an investee company, we will downgrade our quality assessment for that business. This can result in us reducing our exposure to the company or even selling our holding entirely. Before taking such action, the investment team will typically arrange a meeting or conference call with the company.
On occasion, we may be asked by one of our investee companies or a corporate broker to become an insider. Generally, we are not willing to become an insider, as we want the ability to trade in the companies we hold. If we do become an insider, we restrict trading in a company until we are satisfied that the information has come into the public domain or is no longer price sensitive.
If one of our investee companies or a corporate broker representing one of our investee companies wished to discuss sensitive information with Metropolis, they should make initial contact via our website www.metropoliscapital/contact-us.
Principle 4: Escalation
We are long-term investors. As set out above, we spend a considerable amount of time pre-investment to understand the business. Once we have made the commitment to invest, we constantly monitor fundamental news flow with respect to that business and the industries in which it operates.
If we believe that shareholder value is being threatened, Metropolis will always act in our investors’ best interests. If we hold a significant stake in a business, we will actively discuss any concerns with the management of the business. If we hold only a very small stake in a business, we recognise our reduced influence and will exercise our proxy vote to reflect our views. If we feel that the issues identified are not rectifiable and could damage long-term shareholder returns, we would sell our holding entirely.
Principle 5: Act collectively with other investors
We are willing to act collectively with other investors where appropriate, for example when a company is being taken private or acquired at a price which we believe undervalues the equity. In so acting, we always keep in mind regulatory rules such as those concerning market abuse and concert parties. Any enquiries regarding Metropolis’s participation in collective engagements should make contact via our website www.metropoliscapital/contact-us.
Principle 6: Policy on voting and disclosure of voting activity
As fund managers, we retain full discretion for the voting decisions. To help manage the process, we use an industry standard Proxy Exchange voting platform. We aim to vote on all shares within the portfolio and we will not automatically support the Board if we think that in doing so would not be in the interests of our investors.
All voting activity is recorded and comprehensive voting records are available to our investors.
Metropolis Capital does not engage in stock lending activities.
Principle 7: Reporting on stewardship & voting activities
Metropolis Capital has engaged an industry standard Proxy Voting Services to help facilitate our voting and engagement activities. We review all Annual General Meeting (AGM) and Extraordinary General Meeting (EGM) agendas prior to voting. We will vote against the Board’s recommendations if we do not believe the actions proposed are in the best interests of our investors.
If, following detailed analysis, we do not have a strong view for or against a Board recommendation, we will follow the ISS recommendation, which is based on the NAPF (National Association of Pension Funds) guidelines and ISS’s own proprietary research.
Metropolis Capital records and maintains a log of all engagement and voting activity, which is available to investors on request.
Last reviewed: January 2019