M&L Capital Management
Our central investment thesis is that we believe in the increasing economic power of the Machine in the two century long battle for supremacy between Man & Machine
This statement explains how MLCM meets the requirements in the Shareholder Rights Directive II relating to engagement with public companies and other parties in the investment ecosystem.
M & L Capital Management Limited (“MLCM”) is an independent asset management firm, which specialises in running global equity portfolios.
As a fiduciary investor, MLCM undertakes investment stewardship engagements and proxy voting with the goal of protecting and enhancing the long-term value of our clients’ assets. In our experience, sustainable financial performance and value creation are enhanced by sound governance practices, including risk management oversight, board accountability, and compliance with regulations.
MLCM takes a long-term view in its investment stewardship work informed by two key characteristics: our client fund mandates have long-term investment horizons; and the majority of our equity holdings are in developed markets with strong regulatory environments, so our clients are, by definition, long-term shareholders. MLCM’s approach to stewardship is outlined in the Ownership and the UK Stewardship code section.
As an integral part of the MLCM investment process, we carefully monitor and analyse all companies and other issuers held in active portfolios both before and during the period of our investment. The monitoring covers:
• financial and non-financial performance and risk.
• capital structure.
• social and environmental impact and corporate governance.
• Tax transparency.
• Auditors and audit-related issues.
• Compensation and benefits.
It may include assessment of companies and issuers’ own and market data, consideration of research from brokers and other independent research providers – including ESG & voting research, attending individual & group meetings with management and directors, visiting production sites, talking to competitors, customers and other stakeholders, and our own financial modelling. Companies and other issuers held in MLCM portfolios are discussed regularly within our investment teams, informed by our monitoring and analysis.
MLCM where possible meet or attend conferences where management of companies and other issuers are present as part of its active investment process. This engagement is a key element in our stewardship and oversight of client assets. MLCM engage to understand the approach management is taking and to review its stewardship standards. Where possible MLCM encourage investee companies and other issuers held in client portfolios to establish and maintain high levels of transparency, particularly in their management of ESG issues and risks. MLCM prioritise our engagement on the basis of scale of client holdings, importance of the issues concerned, and our overall exposure to the issues.
Engagement, if required or appropriate, will be conducted through meetings with company management or through email communication with company management or Investor Relations. It may include further contact with executives, meeting or otherwise communicating with non-executive directors or the chairman, voting, communicating via the company’s advisers, submitting resolutions at general meetings or requisitioning extraordinary general meetings. MLCM may conduct these additional engagements in connection with specific issues or as part of the general, regular contact with companies.
If there are issues relating to the company which the executives of a company cannot answer, alternative methods, depending on the issue, may be employed.
MLCM believes that exercising our voting rights is an important expression of the firm’s stewardship and broader responsible investment approach.
Where MLCM believes that a resolution put forward to shareholders by Management would be detrimental to shareholder interests, it is the policy of MLCM to vote against it. Equally, if MLCM believes a resolution put to Management by Shareholders is in the positive interest of Shareholders, then it is the policy of MLCM to vote for it.
Where there are onerous restrictions as a result of voting – for example, where trading is restricted prior to a meeting in shares committed to vote (share blocking), we will usually only vote where the benefit of voting outweighs the benefit of the ability to trade.
MLCM voting decisions are driven by various factors, but the underlying aim is to encourage high standards of corporate governance, transparency (including tax transparency), sustainable performance and accountability on environmental and social issues.
MLCM will disclose on an annual basis a general description of voting behaviour.
MLCM will provide individual detail of how votes were cast at each company where it has a significant holding (more than 3% of outstanding voting rights). However, given the large cap nature of MLCM’s investments, it is not envisaged that the firm will have any significant concentrations in any shares held on behalf of clients.
There are occasions when it may be better to work with other shareholders to effect positive change. This may involve sharing views and ideas with other institutions. It may also involve meeting companies jointly with other shareholders or using the services of third-party membership organisations or other collaborative or informal groups.
MLCM are careful to ensure that we respect rules about acting in concert and other forms of collective action, as well as rules on insider information.
Asset management is MLCM’s only business. Even so, it is possible that situations may arise that would lead to concerns over possible conflicts of interest. Such considerations are included in and covered by the Firm’s Conflicts of Interest Policy.
In a stewardship, engagement and proxy voting context, where potential conflicts of interest may arise, for instance where we are investors in a company that is associated with a client, we adhere to the following procedure:
• In line with our normal practice, engagement and proxy voting decisions are agreed by the Portfolio Managers.
• In the event of a controversial issue, that is escalated to the Compliance Officer
• Arrangements and procedures are maintained to monitor potential conflicts of interest and regular reports are submitted to senior management on the operation of these arrangements.
The overriding test at each stage of this process is that the approach and actions taken must be in the interests of those clients on whose behalf they are being taken and consistent with our TCF (‘treating customers fairly’) obligations.
Oversight of conflicts of interest is embedded within the MLCM governance framework, which includes regular risk management meetings and independent monitoring of voting decisions by the compliance officer in the organisation.
The UK Stewardship Code is overseen and published by the Financial Reporting Council, the independent regulator overseeing financial reporting, accounting and auditing and corporate governance . The Code, first published in 2010, sets the benchmark in the UK for institutional investors to meet ownership obligations in respect of their holdings of UK equities.
MLCM manages client assets with the objective of generating returns consistent with clients’ objectives. It is therefore central to the Firm’s investment process to consider each company’s ability to create, sustain and protect value. It is essential to question and challenge companies about issues that the Firm perceive may affect their value. Engagement and actively voting the shares it manages on behalf of clients should therefore be seen as integral to its equity investment process.
MLCM will engage and may vote on any issue affecting the long-term sustainable value of a company in which it is invested. Issues may include, but are not limited to, business strategy, performance, financing and capital allocation, management, acquisitions and disposals, operations, internal controls, risk management, the membership and composition of governing bodies/boards and committees, sustainability, governance, remuneration, environmental and social responsibility.
MLCM’s resources used for each engagement with a company will be managed according to the circumstances and potential impact of each case. Where the holding in funds controlled and voted by MLCM is a small fraction of a company’s capital, there will be generally proportionately less resource applied to engagement, as shareholders with a minimal holding of a company’s share capital are unlikely to have a material influence.
Intervention will generally begin with a process of enhancing the Firm’s understanding of the company and helping the company to understand the Firm’s position. The extent to which MLCM would expect to effect change will depend on the specific situation. MLCM’s focus will be on issues material to the value of the company’s shares.
Please see section above entitled “Conflicts of Interest”.
Typically, monitoring by the Portfolio Managers (supported by MLCM’s mid office team who are responsible for monitoring corporate actions and related deadlines) will occur around financial reporting, general meetings, in connection with news and announcements and when, for whatever reason, MLCM might be conducting research into investment ideas or reviewing holdings.
The extent and frequency of monitoring will be partly dependent on the type of investment: a large percentage holding selected by detailed analysis will be monitored more frequently and in greater depth, for example, than a small percentage holding.
The issues covered in monitoring any company will include those identified under principle 1 above as the issues with which we may engage with any company.
MLCM generally supports the management of the companies in which it invests. Where proposals are not consistent with the interests of shareholders MLCM will vote against resolutions. The Firm may abstain where mitigating circumstances apply, for example where a company has taken steps to address shareholder issues.
As an active fund manager acting in the best interests of our clients, it will be understood that MLCM is reluctant to be in receipt of price sensitive information from companies or their advisers. Receiving such information places the Firm inside and therefore unable to trade shares in the stock(s) concerned. Much of the value created for clients arises from active stock selection and therefore MLCM must retain the ability to trade. In exceptional cases, however, the Firm may agree to be taken inside for a temporary period only.
The Firm rarely attends company general meetings in person – there are usually more effective means of communicating with and offering support to companies.
Please see section above entitled “Engagement with Investee Companies”
Please see section above entitled “Engagement & Cooperation with Other Shareholders”.
Please see sections above entitled “Voting Rights” and “Voting Disclosure”.
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Note: Whilst Manchester & London Investment Trust (“MNL”) is available for investment by any investor on the London Stock Exchange platform, M & L Capital Management is only the marketing agent for MNL in the UK.