1. Introduction
J O Hambro Capital Management (“JOHCM”) is a performance-led active investment management company, offering its institutional and wholesale client base differentiated regional equity, global equity and multi-asset strategies.
JOHCM invests for the long term. Its highly experienced investment teams use rigorous analysis to identify the best investment opportunities in their investment universe. They then build distinctive portfolios accounting for risk intended to outperform an appropriate benchmark over a full market cycle. JOHCM's portfolios will typically look very different from their benchmarks and many peer funds; its fund managers are looking to beat the market, not match it.
JOHCM's fund managers have complete investment freedom within their mandates, subject to regulatory and our internally-agreed investment restrictions. There is deliberately no ‘house’ view on economies, markets, sectors or stocks. This leads to a diversity of views and approaches across its investment teams.
However, all of our fund managers appreciate the importance of stewardship practices, including engagement and voting. Their actions and decisions as shareholders can affect practices in the entities in which we invest, in turn affecting the environment, our stakeholders, and the community. We understand that we have both a duty and an interest in managing this influence and with that in mind have set out the JOHCM approach to stewardship below. Its broad aim is to prevent and reverse negative decisions made by investee companies, in order to maximise their long-term value. It is JOHCM’s intention to become a signatory to the 2020 version of the Financial Reporting Council’s Stewardship Code (the “Code”). JOHCM was a signatory to the previous version of the Code.
JOHCM has a long history of talking to companies about matters of strategy, remuneration and financial performance and welcomes the recent increase in the depth and breadth of investors’ stewardship activity.
2. Approach to Engagement
Our success as an asset manager has been founded upon experienced fund managers with proven investment pedigrees and these carry weight, improving our ability to effect change when engaging with companies. Accordingly, the principles of the Code are integrated in the investment processes of the individual investment teams, rather than being devolved to a separate team.
JOHCM currently runs 23 investment strategies (as at 31 December 2020), principally investing in equities. Each of its investment teams is small, our largest team is five people, and has investment autonomy. All of JOHCM’s fund managers recognise the value of engagement, and JOHCM sees engagement effectiveness as predicated on investment teams devising their own engagement strategies, styles and engagement topics; each align with the team’s purpose and value proposition to clients.
JOHCM’s fund managers aim to understand industry dynamics and structural changes as well as any company-specific issues for each of the companies in which they invest. They then focus on governance (for example, capital allocation and the remuneration structures which drive those decisions), social aspects (such as encouraging companies to work with all their stakeholders and improve corporate culture) and environmental factors (for example, exposure to risks relating to climate change) to support value protection and creation in that company over the long-term. In other words, the fund managers consider environment, social and governance (“ESG”) factors.
Engaging with investee companies is a natural extension of JOHCM’s active approach to investment management. Where appropriate, the fund managers undertake engagement with investee companies and issuers, focusing those where areas of concern have been identified or where a fund manager’s shareholding affords them greater influence. Each of JOHCM’s investment teams approach engagement in a manner that is tailored to their influence, asset class, geography and client base.
JOHCM’s Investment Director, Risk and Performance teams provide comprehensive oversight of the investment teams and their strategies. For each team, on a quarterly basis, there is a formal review that incorporates an analysis of the performance, decision-making, risk profile, fund liquidity, compliance and the ESG characteristics and changes of the holdings.
JOHCM believes that this oversight structure, with each fund team conducting its own analysis and engagement, provides a greater benefit to clients than those investment management companies which outsource the responsibility to separate ESG or stewardship teams. Furthermore, many of its strategies have concentrated portfolios, typically under 60 names, which allow the fund managers to perform detailed analysis of their investments and to focus their attention to a greater extent on those areas where their engagement can have the greatest effect.
3. Monitoring of and Engagement with Investee Companies
The engagement process for each fund management team is based around our thorough understanding on an ongoing basis of the character and quality of investee companies, the risks and the areas of potential improvements. ESG factors are, to varying degrees, incorporated in our assessment of:
- the performance of the business and the execution of the strategy;
- capital allocation decisions; and
- the risk within the business and the industry.
Each team of JOHCM fund managers has several ESG tools available on which they can draw to carry out their analyses, but it is our belief that ESG analysis is not something separate from the investment process, and therefore these tools do not replace fundamental and integrated analysis. This analysis informs engagement priorities and insights from engagement are used to further enhance analysis.
At a JOHCM Group level, JOHCM uses third party ESG research to monitor potential areas of concern pertaining to our holdings. These tools also allow us to analyse the profile of each investment strategy against its investment benchmark and access detailed analysis from these providers. Companies which fall into the lowest category in MSCI’s Company ESG ratings are reviewed for justification of the holding by the fund manager. Ratings downgrades are monitored to ensure we capture the changing risk profiles of our investments. This analysis is incorporated into the regular quarterly review of each strategy conducted by JOHCM’s Investment Director. Individual fund managers will also use business involvement data provided by ISS for strategies which apply activity-based exclusions.
It is worth noting that the rate and nature of change is often as important as the level of the ESG rating itself. Much of the engagement by JOHCM fund managers is with companies with lower than average ESG ratings with a view to helping them improve their practices, which we believe will ultimately create more value.
In engagement, JOHCM fund managers frequently discuss a variety of issues or provide feedback directly with executive and non-executive officers, informed by our company analysis, including ESG assessments. Where any concerns are identified, depending on the type, urgency and severity, the fund manager will initiate engagement with a company's board, executive management and/or its advisers. Occasionally event-related issues trigger immediate escalation of specific governance and strategy concerns to the senior independent director or company chair, using the UK Corporate Governance Code as their guide for both UK and non-UK holdings.
All engagement across the firm is recorded in an engagement tool. This tool enables fund managers to record engagements, the topics discussed and relevant outcomes. Fund managers may also use the tool to record engagement plans and objectives, and enable progress to be checked against milestones.
4. Stakeholder Involvement and Cooperation with other Shareholders
Subject to applicable market conduct rules, JOHCM fund managers occasionally act with other investors where they believe such collaboration will increase the chances of bringing about change. Equally, they may from time to time engage with other stakeholders such as regulators or industry bodies when they believe that broader collaboration on an issue may have a meaningful impact.
5. Voting
JOHCM has implemented robust written policies and procedures designed to ensure that, when voting proxies in respect of the securities that it manages for its clients, it:
- does so in the best interest of its clients, addressing any conflicts that may arise between its interests and those of its clients;
- discloses to clients how they may obtain information from the firm about how the firm voted with respect to their securities; and
- describes to clients its proxy voting policies and procedures and, upon request, furnishes further details of these policies and procedures to clients.
JOHCM has established procedures to ensure that all proxies that are received are properly distributed and voted on a timely basis. A list of all upcoming annual and extraordinary general meetings, together with details of their agendas and relevant research, is circulated automatically to all relevant fund managers for consideration. To support this, JOHCM has appointed the services of a third-party service supplier, ISS. They act as our sole proxy voting and research provider, facilitate our voting activities and disseminate research and recommendations. The ISS system generates a customised voting template which puts forward a voting recommendation in line with our voting policy and best practice standards.
As with any significant new provider to JOHCM, we have performed a due diligence review of that provider which is periodically updated in line with our vendor management framework. The degree and frequency of the due diligence will be commensurate with the importance of the relationship to JOHCM’s operations and the materiality of the risk.
Where research, including (but not limited to) research from proxy advisers, highlights issues which do not represent best practice, the shareholder meeting agendas are also shared with the Investment Director for consideration. These are the votes which JOHCM considers to be the most significant and therefore meriting the greatest attention. In these cases and others if appropriate, the fund managers may choose to discuss these issues directly with company management. If necessary, they will escalate governance and strategy concerns to the senior independent director or company Chairman when shareholder value and shareholders’ rights are being infringed, using the UK Corporate Governance Code as their guide for UK holdings, and applying the same principles to non-UK holdings. Fund managers may engage in discussions with other investors where appropriate and in compliance with market conduct rules.
The fund managers have discretion to make a voting decision based upon their careful analysis of the proposals, their engagement with the company and/or any available third party research. Where the fund managers are in agreement with the proposals, and they are in investors’ best interests, then JOHCM will vote in favour of them.
The fund manager’s decision is communicated to the Operations team where an authorised individual will submit the proxy vote using the ISS system.
JOHCM understands the importance of voting proxies and will cast its vote proxies in the best interest of its clients. Should a conflict of interest arise between JOHCM's interests and those of a client, JOHCM will arrange a discussion with such client to review the proxy voting materials and the conflict and will obtain the client's consent before voting. If JOHCM is not able to obtain the client's consent, JOHCM will take reasonable steps to ensure, and must be able to demonstrate, that those steps resulted in a decision to vote the proxies in the best interests of the client.
JOHCM’s voting records are held on ISS’s secure system.
JOHCM is happy to discuss its voting activity or discourse with company management as appropriate, should clients or potential clients have a particular interest.
6. Conflicts of Interest
JOHCM’s approach to conflicts management consists of the following stages, set out in the firm’s Conflicts of Interest Policy:
- Identification of conflicts of interest
- Recording of conflicts of interest in the JOHCM Conflicts Register
- Implementing appropriate procedures and measures to prevent or manage conflicts of interest which have been identified
- Monitoring the effectiveness of JOHCM’s conflicts management arrangements, including the Conflicts Policy itself
- Provision of information to clients, including disclosure of conflicts of interest where required, provided that disclosure may only be used as a last resort where the arrangements established by JOHCM to prevent or manage conflicts are not sufficient to ensure, with reasonable confidence, that risks of damage to client interests will be prevented
- Reporting to senior management in relation to conflicts of interest.
A summary of the Conflicts of Interest Policy can be found here: JOHCM Conflicts of Interest Policy
7. Reporting
A report of JOHCM’s activities under this Policy is published annually to provide an overview of JOHCM’s stewardship activities and incorporates our annual proxy voting record. This is available from JOHCM’s website or from our Client Services team. Equally, we are happy to engage directly with our investors and clients to explain our approach to any aspect of this policy, as effective stewardship ultimately helps to drive the investment returns they are seeking.
8. Review
This Policy has been adopted by J O Hambro Capital Management Limited and JOHCM Funds (UK) Limited. They will review this Policy at least annually.
