Value creating shareholder activism and IR demands

Transcription

1 Value creating shareholder activism and IR demands Danish Investor Relations Conference Copenhagen, 13 September 2007 Hege Sjo Hermes Equity Ownership Services Ltd

2 Presentation outline Shareholder engagement as investment philosophy Main engagement objectives Global forces enhance more active ownership Does the active engagement approach pay off? Implications for IR and company communication 2

3 Aligned with pension fund goals and objectives Introduction to Hermes Among Europe s largest pension funds with 68 billion (~DKR 752bn) under management (1) Executive arm of BT Pension Scheme, with over 200 external clients Holdings in ~4000 companies, vote all where possible We believe active shareowners create long term value in companies Regard shareholder engagement as an important source of fund returns (1) Hermes refers to Hermes Pensions Management Limited, including its subsidiaries and affiliates. Funds under management and exchange rate as at 30/6/07. In addition, Hermes, through its Equity Ownership Service ( EOS ) provides a shareholder engagement and stewardship advisory service on 23bn/DKR 254bn (as at 30/6/07) of 3 rd party client equities 3

4 Hermes invests across most asset classes Hermes investment profile and philosophy 4

5 Our engagement objective is to unlock value Shareholder engagement and investment ESG Issues Underperformance Valuation Potential Screening Identification Analysis Selection Engagement 5

6 Main engagement objective Align companies and investors around the objective of maximizing long term shareholder value. We engage on: Board nomination, composition and structure Strategy (including M&A transactions and capital allocation discipline) Incentives and other governance issues Capital structure Sustainability issues However Shareholders must not micro manage companies 6

7 Funds managing $ 8 trillion committed to integrate ESG into investments Global forces for active ownership 7

8 Active and close networks make us effective in engagement and policy Global forces for active ownership Active participation in multiple investor networks UNEP FI, IIGCC, GIGN, CII, ACGA, RIN, UKSIF, EUROSIF Enhanced Analytics Initiative Active supporter of Carbon Disclosure Project Founder signatory of the United Nations Principles for Responsible Investment 8

9 Does the active engagement approach pay off? 9

10 Hermes Focus Funds have gained excess returns Does the active engagement approach pay off? 16% 14% Absolute Fund Performance (pa) Benchmark (pa) Relative Performance (pa) Since Inception to 31 July % 12% 12.6% 10% 10.3% 10.2% 11.2% 8% 6% 7.0% Performance (p.a.) 4% 2% 0% 3.1% Hermes UK Focus Fund Hermes European Focus Fund 4.4% 1.2% Hermes UK Small Companies Focus Fund (launched 1 October 1998) (launched 25 February 2002) (launched 4 March 2002) (1) UK Focus Fund benchmark is FTSE All Share Total Return Index. (2) European Focus Fund benchmark is FTSE World Series Europe (ex UK) Total Return Index. (3) UK Small Companies Focus Fund benchmark is FTSE Small Cap (ex Investment Trusts) Total Return Index. (4) Relative performance is calculated on a geometric basis and is net of management charges and performance fees, as at 31 July

11 Engagements benefit other investors too Does the active engagement approach pay off? Financial Times 11 June

12 Active ownership improve markets Does the active engagement approach pay off? such active and informed ownership is expected to stimulate the search for the best possible use of corporate assets and thereby contribute to better risk and resource allocation in the economy as a whole. 12

13 Example from UK Focus Funds shows excess returns Becht et al (2006) study Does the active engagement approach pay off? Change CEO Change Chairman More Independence Objective Outcome Increase Cash Payout Rights Issue Objective Outcome Change Non- Execs Discipline Capital Expenditure Objective Outcome More Focus Reduce Discount on NAV Non-Diversified : Asset Sales Stop Acquisition 13

14 Example from UK Focus Funds shows excess returns Does the active engagement approach pay off? Becht et al (2006) study 14

15 Conclusions Companies with informed and involved owners are more likely to achieve superior long- term performance Supported by strong investor networks we succeed in unlocking value for our clients IR efforts and investor dialogue is expected to broaden in scope 15

16 Important Information This communication is directed only at Market Counterparties or Intermediate Customers, as defined in the Glossary of the Financial Services and Markets Act Any investment or investment activity to which this communication relates is only available to and will only be engaged in with such persons and any other persons who receive this communication should not rely on or act upon this communication. This communication is issued and approved for the purposes of section 21 of the Financial Services and Markets Act 2000 by Hermes Investment Management Limited ( HIML ). HIML has its registered office at Lloyds Chambers, 1 Portsoken Street, London E1 8HZ. Hermes Pensions Management Limited is the parent company of a number of companies falling within the Hermes Group. The main operating companies within the Hermes Group are Hermes Investment Management Limited ( HIML ), Hermes Administration Services Limited ( HASL ), Hermes Real Estate Investment Management Limited ( HREIML ), Hermes Focus Asset Management Limited ( HFAM ), Hermes Focus Asset Management Europe Limited ( HFAME ), Hermes UOB Capital Asset Management Limited ( HUCM ), Hermes Private Equity Limited ( HPEL ) and Hermes Assured Limited ( HAL ). All of the above named companies (with the exception of Hermes Real Estate Investment Management Limited) are separately authorised and regulated by the Financial Services Authority. The Hermes Property Unit Trust ( HPUT ) is constituted by an amended and restated trust deed between the Committee of Management and the Trustee both of which are authorised and regulated by the Financial Services Authority. The Committee of Management appoints the trust manager (HIML) and the real estate managers (Hermes Real Estate Investment Management Limited) and has overall responsibility for the trust. Please note that the Financial Services Authority does not generally regulate any activities referred to in this document which are not regulated activities under the Regulated Activities Order Hermes Absolute Return Fund (Guernsey) Limited is authorised by the Guernsey Financial Services Commission and is listed on the Irish Stock Exchange. This document has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. This document is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Prospective investors must rely on their own examination of the legal, taxation, financial and other consequences of an investment in the funds, including the merits of investing and the risks involved. Prospective investors should not treat the contents of this document as advice relating to legal, taxation or investment matters. Before entering into an agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment advisers as to its suitability for you and should understand that statements regarding future prospects may not be realised. No action should be taken or omitted to be taken in reliance upon information in this document. All terms are subject to change and are only valid when a signed application form has been accepted by HFAM/HFAME/HEOS. Figures, unless otherwise indicated, are sourced from Hermes. The opportunities described in this document have unique risks that may make them unsuitable for certain investors and past performance may not be indicative of future results. Also, certain returns shown in this document are compared against returns for the relevant benchmark index during similar periods. It is important to note that the underlying volatility and risk of the funds portfolios and that of their benchmark indices vary materially. Property is an illiquid investment and may result in deferment of redemption of units. The value of the property is a matter of a valuer's opinion rather than fact. This document should be read in conjunction with the fund listing particulars which will exclusively form the basis of any application. A comprehensive list of risk factors appears in the fund listing particulars and an investment should not be contemplated until the risks of investment have been considered fully. Investors may not get back the full amount originally invested. The value of overseas investments will be influenced by the rate of exchange. The value and risks of underlying investment may be difficult to verify independently. The provision of the information does not constitute an offer to purchase securities to any person in the United States or to any U.S. Person as such term is defined under the Securities Act of Any person wishing to subscribe for any interest should satisfy himself as to the observance of the laws of any relevant territory, including the obtaining of any requisite governmental or other consent and the observing of any other formalities. This document may include a list of Hermes Pensions Management Limited s clients. Please note that inclusion on this list should not be construed as an endorsement of Hermes Pensions Management Limited s services. Should you wish to contact a client for reference purposes, please let Hermes know in advance. 16