DISCLOSURE OF COMMITMENT TO THE FINANCIAL REPORTING COUNCIL’S
U.K. STEWARDSHIP CODE
Under COBS 2.2.3R any firm other than a venture capital firm, which is managing investments for a professional client that is not a natural person must disclose clearly on its website, or if it does not have a website in another accessible form:
(1) the nature of its commitment to the Financial Reporting Council’s (“FRC”) Stewardship Code (the “Code”); or
(2) where it does not commit to the Stewardship Code, its alternative investment strategy.
Firms which wish to do so may notify the FRC (by email via firstname.lastname@example.org) that they have published a statement; details of each signatory, along with a link to its statement will be listed on the FRC’s website, according to the categories of asset managers, asset owners and service provider here: http: //www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Stewardship-Code/UK-Stewardship-Code-statements.aspx.
The Code comprises a set of ‘apply and explain’ principles for asset managers and asset owners, and a separate set of principles for service providers. Where a principle is not being complied with, a meaningful explanation should be delivered enabling the reader to understand the firm’s approach to stewardship. Firms may determine that some, but not all, of the provisions of the Code are disproportionate in its case and set out as part of its disclosure why this is the case.
Statement of Commitment to the UK Stewardship Code
Under COBS 2.2.3R of the FCA Handbook Caygan Capital Ltd (“CCL”) is required to make a public disclosure in relation to the nature of CCL’s commitment to the UK Financial Reporting Council’s Stewardship Code (“the Code”). The Code was recently revised and the new Code took effect from 1 January 2020.
The Code was published by the FRC, the United Kingdom’s independent regulator responsible for promoting high quality corporate governance and reporting in order to foster investment. Since the first publication of the Code, the investment market has significantly changed. There has been significant growth in investment in assets other than listed equity, such as fixed income bonds, real estate and infrastructure. In addition, environmental, particularly climate change, and social factors, in addition to governance, have become material issues for investors to consider when making investment decisions and undertaking stewardship. Asset owners and asset managers are recognised as guardians of market integrity and play an important role in working to minimise systemic risks and being stewards of the investments in their portfolios.
The new Code consists of 12 principles for asset managers and asset owners, and 6 principles for service providers that support them. The Code does not prescribe a single approach to effective stewardship but allows firms to meet expectations in a manner that is aligned with their business model and strategy.
CCL is authorised and regulated by the Financial Conduct Authority (“FCA”) as a MiFID investment firm. The Firm’s activities give it the BIPRU categorisation of a ‘BIPRU Firm’. To the extent CCL is deemed to be “managing investments for a professional client that is not a natural person”, the Code and this statement shall apply.
CCL supports the principles underlying the Code and our approach to the Code principles are explained below. We will seek to review this statement on an annual basis, and update this where necessary to reflect changes in actual practice. Should you require further information on CCL’s approach to the Code please contact email@example.com.
Purpose and Governance – Principles 1 to 5
Principle 1: Purpose, strategy and culture
Signatories’ purpose, investment beliefs, strategy, and culture enable stewardship that creates long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society
CCL is set up as an investment firm to provide investment advisory and/or investment management services. It seeks to generate mid to long-term value for its clients.
CCL has established its responsible investment policy outlining the minimum standards that need to be adhered to in the provision of any investment service by CCL. A copy can be made available to our clients on request.
Principle 2: Governance, resources and incentives
Signatories’ governance, resources and incentives support stewardship.
CCL’s statement of commitment to the Code is reviewed and approved by CCL’s board of directors on an annual basis.
CCL has, taking into account the size, scale, and complexity of its business, appropriately resourced stewardship activities, including its organisational structure, the experience, qualifications, training, and diversity of its staff, CCL’s investment in systems, processes, research, and analysis, and the service providers we engage.
Principle 3: Conflicts of interest
Signatories manage conflicts of interest to put the best interests of clients and beneficiaries first.
CCL is authorised and regulated by the FCA, which requires firms to identify, and mitigate any conflicts of interest between itself, its clients, and between clients that may result in a loss to them. We maintain a conflicts of interest policy and register to satisfy this requirement, which is subject to regular review.
We have a fiduciary responsibility to act in the best interest of our clients. We do not undertake any other business activities that might give rise to a conflict of interest. We seek to optimise investment returns for our clients through thorough investment research and, since our revenues are dependent on both management and performance (subject to high water marks / hurdle rates), we believe our interests are aligned.
Principle 4: Promoting well-functioning markets
Signatories identify and respond to market-wide and systemic risks to promote a well-functioning financial system.
CCL reviews its investment strategies regularly. CCL will closely monitor any rule that may, on being triggered, amplify or accelerate any negative impact on the financial system.
CCL monitors its investment and accumulated profit and loss (P&L) exposure (if any) in each non-cleared derivative. Where practical from an operational and cost standpoint, CCL will select an investment in a cleared derivative product over a non-cleared derivative product to achieve the same investment risk exposure.
Where relevant CCL may take part in industry initiatives to promote continued improvement of the functioning of financial markets.
Principle 5: Review and assurance
Signatories review their policies, assure their processes and assess the effectiveness of their activities.
CCL has a set of principal policies and internal procedures addressing various aspects of its activities – including its investment operations, compliance, and risk management. A summary list of all of CCL’s internal policies can be made available to our clients on request.
These policies are reviewed annually by its board of directors while regular compliance reviews are conducted by its Singapore based parent company Caygan Capital Pte. Ltd.
From time to time, an independent compliance consultant reviews CCL’s compliance procedures.
Investment Approach – Principles 6 to 8
Principle 6: Client and beneficiary needs
Signatories take account of client and beneficiary needs and communicate the activities and outcomes of their stewardship and investment to them.
We do our best to provide quality investment management service to our clients, which includes timely and regular communications on investment activities.
We keep our clients apprised of all material activities and outcomes of our investment activities, including via monthly reports on the investment activities of the fund(s), regular emails containing performance estimates of the clients’ holdings in the fund(s), and on a yearly basis they receive the audited financial statements of the fund(s) prepared by an independent auditor.
An account of our voting activity (if any) and other stewardship activities can be made available to our clients on request.
Principle 7: Stewardship, investment and ESG integration
Signatories systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change, to fulfil their responsibilities.
As indicated in Principle 1, CCL has established its responsible investment policy outlining the minimum standards that need to be adhered to in the provision of any investment service by CCL. A copy can be made available to our clients on request.
Principle 8: Monitoring managers and service providers
Signatories monitor and hold to account managers and/or service providers.
CCL maintains a register of service providers engaged, with the following information:
i. Name of service provider
ii. Description of service
iii. Identifying outsourcing arrangements (if any)
iv. Primary country of operations
v. Expiry / renewal of services date
vi. Performance review
vii. Risk rating
We perform due diligence on each service provider at the point of engagement, and on an ongoing basis (at least annually), considering factors such as regulatory status, competence, and industry reputation.
Engagement – Principles 9 to 11
Principle 9: Engagement
Signatories engage with issuers to maintain or enhance the value of assets.
At CCL, our investment objective is to deliver positive risk-adjusted investment returns by constructing a risk/reward-efficient portfolio for our clients.
We assess and monitor each issuer’s governance, strategy and performance to ensure it continues to meet the criteria for investment. Financial statements, stock market releases, current market prices and other financial material and information are regularly reviewed. Where relevant, we will engage with the issuers to obtain clarification on the issuer’s business activities, strategy and/or corporate governance.
Principle 10: Collaboration
Signatories, where necessary, participate in collaborative engagement to influence issuers.
We believe we have sufficient expertise and knowledge of each issuer to deal with any concerns that we might have about the issuer’s business activities, strategy or corporate governance. In most cases we would expect to engage with the board on our own initiative or we may decide to dispose of or reduce our holding. However, in certain circumstances, where we believe the issue is of significance and wish to retain our holding, we recognise that collective action with other shareholders may be more effective. This will be dealt with on a case-by-case basis, and with due regard to our policies on conflicts of interest and inside information.
We will only act collectively where we are satisfied it will not breach legal, regulatory, market conduct or confidentiality obligations applicable. Any collective action will only be used to raise legitimate concerns about corporate issues and/or governance issues. The actions may include discussions with other shareholders about concerns to be raised with the board, joint representations by shareholders to the board and agreement between shareholders to vote in a specific way.
Principle 11: Escalation
Signatories, where necessary, escalate stewardship activities to influence issuers.
We are committed to and will take all reasonable action to preserve the interests of our clients. Enhancing returns to our clients is our priority.
Measures we may take to protect and enhance the interests of our clients include, but are not limited to the following:
- Providing feedback to the issuer via electronic or other correspondence;
- Engaging the issuer’s personnel in informal dialogues and discussion;
- Convening face-to-face meetings with key officers of the issuer; and
- Proxy voting.
We will review each situation on a case-by-case basis and will take into account various considerations, the paramount being the risks to our clients, in determining the appropriate course of action.
Exercising rights and responsibilities – Principle 12
Principle 12: Exercising rights and responsibilities
Signatories actively exercise their rights and responsibilities.
Consistent with our commitment to provide quality investment management service to our clients, we will – (a) decide to participate in a voting exercise of an issuer; and (b) if we decide to participate, exercise our vote in such a manner – that in our opinion will best serve our clients.
Factors that we will take into account in deciding (a) and (b) above include the value of the portfolio holdings in relation to the total holdings, the subject of the vote, jurisdiction where the voting exercise is held, and other relevant factors.
An account of our voting activity (if any) can be made available to our clients on request.
LAST REVIEWED: JANUARY 2020