Investments do better when asset managers and pension funds engage with companies, proves new Investment Association report

Communication between asset managers or asset owners and the companies they invest in makes for a better investment, according to new research from the Investment Association (IA) and the Pensions and Lifetime Savings Association (PLSA).

The idea of “stewardship”, or communicating with portfolio companies to ensure good practice is being carried out, has in the past been viewed by some asset managers and institutions as a tick-box to keep investors happy.

But today’s survey has found that good engagement actually has a positive impact on investment decisions and leads to increased value.

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“High quality engagement is key to the important role of the investment management industry. It has an essential place in ensuring that companies take long term decisions which offer the best returns to investors and savers,” said Chris Cummings, chief executive of the Investment Association.

“The asset management industry must take an active role in engaging on company’s strategy in the interests of driving long term value.”

The survey shows that, of the respondents which conducted stewardship in-house, almost two thirds reported that engagement with UK companies resulted in better investment decisions.

Asset managers tend to take care of stewardship in-house, while asset owners such as pension funds tend to outsource the activities.

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However a “substantial core” are now integrating it into their investment practices and 68 per cent now include a stewardship policy in their statement of investment principles.

Engagement has tended to focus on executive remuneration, although the IA and the PLSA recommend that “other drivers of long term value” should be considered.

“At the heart of this research is the simple message that communication is key to good outcomes for asset owners as well as asset managers,” said Joe Dabrowski, head of governance and investment at the PLSA.

“Workplace pension schemes have £1.9 trillion of assets under management in the UK and are therefore keenly interested in not just how an investment performs in the short term but its long-term value. The research highlights the steps that institutional investors are taking on an ongoing basis to ensure that high standards of stewardship are built and maintained.”

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