The UK Stewardship Code

The UK Stewardship Code

Epiris

December 2016

Statement of Compliance with the UK Stewardship Code

Epiris complies with all of the provisions of the UK Stewardship Code (“the Code”) which was issued by the Financial Reporting Council in September 2012, in respect of the investments it manages for its clients in Directly held Listed Investee Companies with the exception of the provision relating to obtaining an independent opinion on its engagement and voting processes having regard to an international standard or a UK framework such as AAF 01/06.

As is explained further below the majority of the investments managed by Epiris are in private companies which are not listed and which are not subject to the UK Corporate Governance Code. On this basis Epiris does not consider it appropriate or effective for it to obtain an independent opinion on its engagement and voting processes having regard to an international standard or a UK framework such as AAF 01/06.

 

Epiris LLP

Epiris Managers LLP (“Epiris”) is authorised and regulated by the FCA and is the firm which manages the portfolio of Electra Private Equity Plc (“Electra”) which is Epiris largest client. In addition, Epiris manages two other private equity funds which hold co-investments in Investee Companies in which Electra has also invested.

Directly held Listed Investee Companies

Epiris manages a number of directly held listed investments, (“Directly held Listed Investee Companies”) some of which are based in England and subject to the UK Corporate Governance Code and other listed investments which are based in other countries and subject to other corporate governance requirements. Epiris considers that the Code applies to its management of its clients investments in Directly held Listed Investee Companies.

Private Equity Investee Companies

 The majority of investments managed by Epiris for Electra are in private companies (“Private Equity Investee Companies”) which are not listed and which are not subject to the UK Corporate Governance Code. All of the investments held by the other clients of Epiris are in Private Equity Investee Companies which are neither listed nor which are subject to the UK Corporate Governance Code.

The FCA has a rule requiring investment managers to report on their compliance with the Code.  As explained below, Epiris does not consider that the Code is applicable to its role in managing its client’s investments in Private Equity Investee Companies.

When Epiris is acting as a manager of its client’s investments in Private Equity Investee Companies, it has a high level of direct involvement with each investment which is typical for private equity investments. This may for instance involve the appointment of Epiris executives as non-executive Directors to the Board of the Private Equity Investee Company, through receipt and review of management accounts and frequent discussions with senior management. In this way Epiris closely monitors the operational performance, governance and strategy of its Private Equity Investee Companies to provide an effective level of stewardship for its clients.

This high level of direct involvement with Private Equity Investee Companies is necessarily different to the stewardship role Epiris and other Institutional Investors carry out in relation to their client’s investments in Directly held Listed Investee Companies, where the emphasis is on careful investment selection, monitoring of the investments and voting at general meetings with direct involvement occurring on a much less frequent basis. In addition, it should be noted that Private Equity Investee Companies are often not required to hold annual general meetings or other general meetings.  

Epiris

December 2016

Policy on Discharge of Stewardship Responsibilities

Monitoring of Directly held Listed Investee Companies

Details of Epiris’ Procedures for Monitoring Directly held Listed Investee Companies are explained below.

The Strategy on Intervention

Details of Epiris Guidelines for Escalation of Activities as a Method of Protecting

and Enhancing Shareholder Value are explained below.

Internal Arrangements on Discharge of Stewardship Responsibilities

Stewardship by Epiris is integrated into the wider investment process through the detailed consideration given to all aspects of investment opportunities prior to an investment being made. Once an investment has been made in a Directly held Listed Investee Company, stewardship of that investment is primarily carried out through careful monitoring of the investment and through participation in voting at general meetings.

Epiris Policy on Voting

Details of the Epiris Policy of Voting and Disclosure of Voting Activity are explained below.

Epiris Policy on consideration of explanations in relation to the UK Corporate Governance Code 

Epiris is aware of its responsibility to protect the interests of its clients when casting its votes. When considering our voting decisions for Directly held Listed Investee Companies subject to the UK Corporate Governance Code, Epiris will give due weight to all factors of which it is aware such as the size and complexity of the company and the nature of the risks and challenges it faces. In particular Epiris will avoid a box ticking approach. In the event that Epiris has concerns about a company’s governance arrangements, Epiris will:

v  Enter into a dialogue with the company based on a mutual understanding of objectives

v  Give due weight to all relevant factors drawn to our attention

v  Make considered use of our votes

 

Epiris

December 2016

Policy on Conflicts of Interest regarding Stewardship of Directly held Listed Investee Companies

The duty of Epiris is to act in the interests of all its clients when considering matters such as engagement and voting. Conflicts of interest could arise from time to time, which may include voting on matters affecting a client or clients.

Potential areas of conflict of interest in relation to stewardship are below. The key procedures and measures used by Epiris to deal with conflicts of interest in relation to stewardship are also shown below.   

Conflicts with Directly held Listed Investee Companies 

There may be an inherent conflict between what the objectives are of a particular Directly held Listed Investee Company and what Epiris considers is the most appropriate way to achieve its client’s investment objectives. Epiris carefully monitors its Directly held Listed Investee Companies to be aware of issues which could impact on its client’s investment objectives and if it deems it appropriate is prepared to enter into a focused dialogue with the Directly held Listed Investee Company regarding how Epiris client’s interests can be improved. Depending upon the outcome of the discussions, Epiris may be unable to reconcile the differences between the objectives of the Directly held Listed Investee Company and the investment objectives of Epiris clients.

Conflicts with Institutional Investors

Epiris recognises that collaboration with other like-minded investors can be an effective method in which to engage with a Directly held Listed Investee Company’s management that appears resistant to an effective response to Epiris concerns. However, there may be instances where Epiris is managing an investment in a Directly held Listed Investee Company and the other Institutional Investors do not share the concerns of Epiris, where the continued holding of the investment would be reviewed. 

Procedures and Measures in place to deal with conflicts of interest in relation to stewardship

 

Policy to refer potential conflicts of interest to the Compliance Officer and Management Committee of Epiris

The executives at Epiris are experienced investment managers and consider they can rapidly recognise a potential conflict of interest situation. It’s policy is to refer potential conflict of interest situations to the Compliance Officer of Epiris in the first instance and if necessary to the Management Committee of Epiris. Either the Compliance Officer or the Management Committee can call on legal advice to assist them in resolving the potential conflict.

Policy to refer conflicts of interest to clients of Epiris

In the event that a conflict of interest arises that it is not possible to resolve via other means, it is policy to clearly explain the issue in writing to the clients or clients impacted with a number of possible solutions. The client or clients concerned must endorse a suitable solution to the issue in question prior to action being taken.

Policy to decline investment transactions

In an extreme case where the conflict of interest cannot be resolved, it is the policy of Epiris to decline to be involved with the transaction in question.   

Epiris

Procedures for Monitoring Directly held Listed Investee Companies

December 2016

Directly held Listed Investee Companies

In all cases relating to its Directly held Listed Investee Companies, the investment monitoring by Epiris is focused on meeting its client’s investment objectives. With this in mind, Epiris endeavours to identify problems at an early stage to minimise any loss of value, including shareholder value.

Epiris will normally monitor its investments in Directly held Listed Investee Companies through review of financial statements, stock market releases, current market prices and other research material. Epiris will consider whether a particular Directly held Listed Investee Company’s Board and committee structures are effective and that independent directors provide adequate oversight.

This monitoring will endeavour to identify problems at an early stage to minimise any loss of value, including shareholder value which is a crucial factor in determining whether it is necessary to enter a focused dialogue with the Directly held Listed Investee Company.

Where it is necessary to enter into a dialogue with a Directly held Listed Investee Company, Epiris will seek to meet the Chairman or other Board Directors as appropriate to express its specific concerns. In these instances, Epiris will maintain a clear audit trail of meetings held with companies, of votes cast, and of reasons for voting against the Investee Company’s management, for abstaining, or for voting with management in a contentious situation.

Epiris will instruct Directly held Listed Investee Companies and their advisers to ensure that inside information which could affect Epiris ability to deal in the shares of the Directly held Listed Investee Company concerned is not conveyed to Epiris.

Epiris will attend the General Meetings of Directly held Listed Investee Companies in which they have a major holding, where appropriate and practicable.

Epiris is aware of its responsibility to protect the interests of its clients when casting its votes. When considering voting decisions for Directly held Listed Investee Companies subject to the UK Corporate Governance Code, Epiris will give due weight to all factors drawn to its attention such as the size and complexity of the company and the nature of the risks and challenges it faces. In particular Epiris will avoid a box ticking approach. In the event that Epiris has concerns about a company’s governance arrangements, Epiris will:

v  Enter into a dialogue with the company based on a mutual understanding of objectives

v  Give due weight to all relevant factors drawn to our attention

v  Make considered use of our votes

 

Epiris

Guidelines for Escalation of Activities as a Method of Protecting and Enhancing Shareholder Value

December 2016

Directly held Listed Investee Companies

In relation to holdings in Directly held Listed Investee Companies, if Epiris has specific concerns about a particular Directly held Listed Investee Company’s strategy and performance, its governance or if appropriate its approach to the risks arising from social and environmental matters, it will initially seek discussions with the Directly held Listed Investee Company’s senior management or members of the Board on a confidential basis to discuss these concerns.

However if the Directly held Listed Investee Company does not respond constructively to Epiris concerns then we will consider the appropriate way to escalate our action for example by:

v  Holding additional meetings with management specifically to discuss concerns;

v  Expressing concerns through the Directly held Listed Investee Company’s advisers

v  Meeting with the chairman, senior independent director, or with all independent directors

v  Intervening jointly with other institutions on particular issues

v  Making a public statement in advance of the AGM or an EGM

v  Submitting resolutions at shareholders’ meetings and

v  Requisitioning an EGM, in some cases proposing to change board membership

 

Epiris

Policy on Collective Engagement

December 2016

Directly held Listed Investee Companies

Epiris recognises that collaboration with other like-minded investors can be an effective method in which to engage with a Directly held Listed Investee Company’s management that appears resistant to an effective response to Epiris concerns. It is recognised there is likely to be a greater need for collaborative engagement in times of significant corporate or wider economic stress or when the risks posed threaten the ability of the Directly held Listed Investee Company to continue.

In such circumstances Epiris will contact other major Institutional Investors of the Listed Investee Company to determine if their concerns are similar and if possible to agree a joint approach to maximising shareholder value.

When participating in such collective engagement with other Institutional Investors Epiris will take appropriate measures to comply with its Policy on Conflicts of Interest regarding Stewardship of Directly held Listed Investee Companies.

 

Epiris

Policy on Voting and Disclosure of Voting Activity

December 2016

Directly held Listed Investee Companies

In relation to its investments in Directly held Listed Investee Companies, Epiris will seek to vote all the shares held and will not automatically support the Board of the relevant Directly held Listed Investee Company.

Epiris is aware of its responsibility to protect the interests of its clients when casting its votes. When considering our voting decisions for Directly held Listed Investee Companies subject to the UK Corporate Governance Code, Epiris will give due weight to all factors drawn to their attention such as the size and complexity of the company and the nature of the risks and challenges it faces. In particular Epiris will avoid a box ticking approach. In the event that Epiris has concerns about a company’s governance arrangements, Epiris will:

v  Enter into a dialogue with the company based on a mutual understanding of objectives

v  Give due weight to all relevant factors drawn to our attention

v  Make considered use of our votes

Epiris does make use of a proxy voting service called Proxyedge for certain of the Directly held Listed Investee Companies under its management. Epiris does not rely on the recommendations of the proxy voting service and it is used in order to streamline the voting process. All voting decisions are made internally by Epiris which are then communicated to the proxy voting service.

Resolutions at company general meetings

v  With regard to voting at company meetings, our concern is always to protect the value of our client’s investments. With this in mind, company proposals are the subject of careful scrutiny.

v  Where we conclude that proposals are not, on balance in shareholders best long term interests, we will enter an active dialogue with the Directly held Listed Investee Company and if we are not able to achieve a satisfactory outcome we are prepared to register our opposition either in the form of a vote against a resolution or an abstention. If we do register a vote against a resolution or an abstention we will inform the Directly held Listed Investee Company of our reasons why.

v  We are not in favour of bundling different proposals into a single resolution. It is our practice not to provide support where we have concerns over one or more aspects of a bundled resolution.

Epiris does not engage in stock lending in relation to its investment in Directly held Listed Investee Companies.

Disclosure of Voting

Epiris does not publicly disclose voting records. This results from both the nature of the investments which are predominantly in private companies and Epiris assessment that it is not in the best interests of the clients of Epiris to do so.

 

Epiris

Periodic Reports on Stewardship and Voting Activities

December 2016

Each year Epiris will issue an annual report to its clients on how it has conducted its stewardship activities over the course of the previous year. The most recent year of reporting on stewardship activities is in respect of the year from 1 October 2015 to 30 September 2016. These reports are tailored to the requirements of each client of Epiris which holds investments in Directly held Listed Investee Companies and show as appropriate qualitative information as well as quantitative information concerning the voting activities of Epiris over the relevant year.

As there may be instances where confidentiality will be crucial to achieving a positive outcome, Epiris will not make disclosures that might be counterproductive towards achieving its client’s investment objectives.

On the basis that the majority of the investments managed by Epiris are in private companies which are not listed and which are not subject to the UK Corporate Governance Code, Epiris does not consider it appropriate or effective for it to obtain an independent opinion on its engagement and voting processes having regard to an international standard or a UK framework such as AAF 01/06.

© Epiris. Legal Notice. Issued by Epiris Managers LLP.
Authorised and regulated by the Financial Conduct Authority
UK Stewardship Code Designed and built by Excite Communications
Epiris Managers LLP
Paternoster House
65 St Paul's Churchyard
London
EC4M 8AB

t +44 20 7214 4200
f +44 20 7214 4201
Email