Sovereign wealth funds entitled to protection: FRC

Peter Montagnon

The UK Government should hold fire when criticising foreign government
investment funds if they subscribe to a newly released investor code, a key
regulator has said.

The UK’s reporting regulator, the Financial Reporting Council (FRC), hopes
its new Stewardship Code will provide a frame work for investment funds to
engage with companies, including sovereign wealth funds, which are owned by
foreign governments.

Peter Montagnon, senior investment adviser to the FRC, told Accountancy
Age the funds were “entitled to a degree of protection” if they subscribed
to the Stewardship Code, created in the wake of the crisis.

Sovereign wealth funds hold an estimated $3.97 trillion stake (£2.49
trillion) in the world economy. Controlled by foreign governments, they are
reluctant to engage with their investment companies out of concern their
comments will be viewed through a political prism.

“If you are actually able to say ‘well we subscribe to this code what we do
by way of activism actually is in keeping with your code, which has your
official and endorsement as a government’, I’d say, in my view, you are entitled
to a degree of protection against the sort of political reaction that might
follow if they were seen in some quarters [as] interfering [in a] national
treasure.”

“I think the code could be useful to sovereign wealth funds because it would
give them parameters where they could be active shareholders without having to
worry about being accused of trying to snatch up or control or interfere with
big companies.”

The Abu Dhabi Investment Authority is believed to be the largest fund, with
an estimated $627bn (£390bn) invested throughout the world, 12% of which comes
to Europe.

The Stewardship Code was devised in the wake of the crisis to promote
engagement between investment funds and companies. It features a series of
escalating steps companies can take if they have concerns with board decisions.

The FRC said 68 institutions have so far publicly signed up to the code
including 48 asset managers, 12 asset owners and eight service providers.

To read the full profile of Peter Montagnon, please see Thursday’s
Accountancy Age.

Further reading:

Investors
encouraged to rail against companies under new stewardship code