Tuesday 31 July 2007

Don't panic!

Despite the recent market turbulence, plenty of pension schemes still have surpluses apparently...

Three-tenths of top schemes in surplus despite market woes
by Jonathan Stapleton 31-07-2007
THREE in ten of the UK’s largest 200 pension schemes remain in surplus despite market falls last week, latest research by Aon Consulting reveals.

The consulting firm said explained that – even though aggregate deficits rose by £9bn alone last Thursday – the top 200 schemes only saw an increase in deficits of £12bn, from £1bn at the end of June to £13bn at the end of July.

However the firm explained that although the aggregate position hid the fact that investment strategies adopted by schemes were divided between those companies with £9bn of pension scheme surplus and those with £24bn of deficit – leading some schemes to target deficit recovery and some to protect their existing surplus.

Aon Consulting senior consultant and actuary Marcus Hurd said: "Many companies and trustees are seeking to protect their surpluses with innovative solutions such as liability driven investment, whereas others are seeking to eliminate deficits by a combination of investment strategy and company contributions.

He added: “High levels of volatility, such as that demonstrated by market falls on 26th July, is likely to increase the trend of many companies and pension schemes locking into surpluses when they appear.

“The accounting basis is only one calculation of surplus, but its inclusion in company accounts and the focus of the Pensions Regulator is causing many companies and trustees to protect their scheme against this measure.”

Monday 30 July 2007

Interim select committee report on private equity

The Treasury select committee has published the interim report of its review of the private equity industry. You can read it online here. It's a very interesting report, much more balanced than the mud-slinging at the public evidence sessions might have suggested was possible. There's quite a bit of discussion of the nature of different types of ownership in there. I'm a big fan of Paul Myners and the following quote from him in the report is bang on I think.

The ultimate investors in private equity are the same ultimate investors in public equity - the pension funds of companies, not-for-profits, public authorities, insurers, endowments and private investors. These investors should ask why they invest in private equity with its association with aggressive capital structures, high incentives for management and a minimalist approach to governance … while adopting an entirely different set of approaches when investing in public equity. Determination of the most efficient form of financing (use of debt) should not be a function of the form of ownership and yet it appears to be.

I also had to have a bit of a chuckle because the report clearly endorses a review of the taxation of carried interest, yet I read just yesterday in The Independent (a popular comic) that the committee would duck the tax question:

My mole in Whitehall tells me that the committee, led by the uncompromising John McFall MP, will steer clear of recommending that the Government slap additional taxation on the buyout industry.

Although the review does not explicitly say "tax private equity more" it does say all of the following:

14. We recommend that the Treasury and HM Revenue and Customs consider the tax treatment of carried interest as part of their review of the taxation of employment-related securities, and that they publish the results. (Paragraph 88)


16. The Treasury is already reviewing "one specific aspect of the current rules that apply to the use of shareholder debt where it replaces the equity element in highly leveraged deals"; the outcome of this review will be reported in the 2007 Pre-Budget Report. We recommend that, in addition to reviewing the tax treatment of debt in highly-leveraged transactions, the Treasury and HM Revenue and Customs examine whether the tax system unduly favours debt as opposed to equity, thereby creating economic distortions. (Paragraph 94)

17. Whilst recognising that this issue is not exclusive to private equity, we ask the Treasury to inform us of the progress on the 2003 review of the residence and domicile rules as they affect the taxation of individuals, setting out what evidence has been assembled, whether any external advice has been commissioned and the rationale behind any proposed changes. Given the apparently rising number of the non-domiciled, and a perception that monitoring of the status of non-domiciles is weak, it is essential that the Treasury and HM Revenue and Customs are able to demonstrate that they have a rigorous approach towards claims of non-domicile status. (Paragraph 95)

Clearly the Indie's sources aren't up to much!

Also today sees the publication of motions to the TUC's annual congress. John W has done a summary so I won't bother. But there are a couple on private equity. One motion from Connect suggests setting up a database on private equity funds, which sounds like a great idea to me.

Sunday 29 July 2007

Communist takeover

There's a good overview in the Observer today about the the growing role of state investment funds, including those from China. I've not blogged on this before, but it has received quite a bit of coverage in the business press over the past couple of years. One interesting bit in the Observer piece is the size of stakes Chinese investment vehicles have taken in some high-profile companies -

Analysts say that Beijing has learnt a lot since 2005 when a Chinese oil company, CNOOC, tried to take over US-based Unocal but was thwarted by opposition on Capitol Hill. Now the Chinese appear to be more content with acquiring minority stakes in Western companies - they hold 7 per cent of Barclays and last month bought a 9.9 per cent share of Blackstone, the US private equity giant that floated on Wall Street.

The point about Chinese investors changing tack from making bids for companies to building up stakes is interesting. Although a lot of people working in the financial system really wouldn't mind selling out a company in its entirety to the Chinese, there is still a large amount of political resistance to the idea, though this seems to be more driven by national pride than concerns about labour standards or human rights. So far such political disquiet makes outright bids less practical, hence the move to building up significant stakes. In the case of Barclays this will also result in a seat on the board - not the greatest advert for good corporate governance.

In the meantime, plenty of people are just happy that the all of Chinese money heading our way is helping keep us afloat:

'Just think about private equity: stock prices have been inflated by the knowledge that cash-rich private equity firms have been circling publicly listed firms and could strike at any moment. Just knowing the Chinese are out there is bound to affect asset values.'

Would be interesting to hear how the dwindling handful of people in the UK who regard China as actually existing socialism see all this!

Friday 27 July 2007

Pensions de-regulation review

This week the DWP published the response of the pensions deregulation review chaired by Ed Sweeney (ex-GS of Unifi, and ex-DGS of Amicus) and Chris Lewin (former head of pensions at Unilever). You can download the doc at the DWP website here. I don't intend on writing about it, but if anyone feels like doing a summary let me know and I will bung it up. The TUC statement suggests that they think they have defused the threat to accrured rights.

One thing I did notice is that there is no statement on the move to 50/50 trustees, on which the review had sought views. In this case no news might be good news. More broadly I would actually not be opposed to a bit of deregulation if it meant we could persuade more employers in the private sector to hang onto DB schemes. But I fear that realistically that may be shutting the stable door after the horse has bolted.

Market wobbles

Here we go. The first sign that the credit crunch might cause us all a bit of pain. See the Beeb for some market news. Meanwhile the FT explains what is going on behind the numbers. Basically you can trace a lot of it back to the mortgages offered to people lower down the income scale in the US, which to me points up the fact that working people are more connected financially than they ever have been.

Workers capital might seem like a bit of an alien concept to many on the Left, but to me its usefulness as a perspective is actually growing. Whilst it started as away of utilisiung share-ownership in a progressive way, it is now spreading into new areas (TU campaigning on privarte equity being an obvious example) and it still needs to go much further. The labour movement needs to get a handle on these things, if only so we can stop people like the bloke below (from the FT article):

At least some people are benefiting from the pain being felt by American homeowners. Word on Wall Street is that the head of one trading desk, after making a lucrative bet against securities backed by mortgages to people with bad credit histories, has had T-shirts made up that cheerfully proclaim: “I’m short your house”.

Thursday 26 July 2007

Credit crunch

Looks like the much heralded credit crunch could be about to bite. See today's FT. Also Robert Peston's blog on the Beeb site which outlines the possible ramifications. Private equity buyouts aren't going to look so attractive, at least for a while.

Wednesday 25 July 2007

Myners to chair Personal Accounts Delivery Authority

This is definitely good news. Paul Myners is to chair the Personal Accounts Delivery Authority. This is, if I understand the process correctly, the body that will get the PA scheme started before handing it over to the appointed trustees. See this bit from Professional Pensions.

I say it's good news as Myners is definitely a decent bloke, will listen to the views of the labour movement, and is a proponent of shareholder engagement. All potentially rather positive. The TUC like it, understandably.

Tuesday 24 July 2007

Pension funds and Iran

There's an interesting bit in the Wall Street Journal today about a coalition of US public sector pension funds engaging with investee companies over the potential risks they face by being involved with the Iranian regime, which the US Government views as a supporter of terrorism. The funds, which include CalPERS, are reportedly taking a fairly modest approach, and the WSJ suggests that their engagement may be driven by other concerns than links to terrorism:

Some politicians have greeted the moves by members of this coalition -- which includes the U.S.'s largest public pension fund, California Public Employees' Retirement System -- with skepticism. California State Assemblyman Joel Anderson, author of an Iran divestment bill that passed the state Assembly and now goes to the Senate, says pension funds that have lobbied hard against these divestment bills can't be trusted to follow through with divestment.

Basically, if the pension funds can demonstrate they are doing "something", they can ease the pressure on them to disinvest.

A couple of thoughts. First, I'm not a fan of divestment except in unique circumstances (ie a cancer charity wanting to avoid tobacco stocks). I don't think it does any good, as the shares just get bought be someone else who doesn't share your concerns. I doubt it will be long before we start seeing major Chinese investors in the market. Do you think they are going to share the same view as US divestment campaigners?

Second, the divestment campaign gives you an idea of what democratised capital markets might end up looking like. To date investor activism has tended to come from the Left (although free enterprise and 'vice' funds exist in the US market). The Iran divestment campaign, and the SEC's recent intervention (see below) in respect of companies doing business with 'rogue' states, show that initiatives may also come from the Right. We might not agree with it, but if 'democratic capitalism' is going to mean anything we have to acknowledge the right of those with other views to organise their capital too.

SEC 'terror' list pulled

In June, the Securities and Exchange Commission in the US had unveiled an online list of companies with links to Cuba, Sudan, North Korea, and Syria. thislist was clearly aimed at investors. However the list has been unceremoniously pulled after less than a month (see SEC statement), although it may return in a revamped form. The SEC had come in for flak from some who argued it was taking an unprecedented step into social policy.

Monday 23 July 2007

Fixing the pay gap

There was an interesting piece in The Observer yesterday about the Government looking into making companies report on how they take employee pay into account when setting directors' awards. This is a long-standing gripe of many on the Left who know a bit about corporate governance. Although the Combined Code says that companies should take account of employees' pay and conditions (see principle B.1 supporting principle), there is precious little evidence that they do.

The Government consulted on the issue when looking at the implementation of the Companies Act, and last month it announced (rather quietly) that it planned to do something about it. See the written answer from then DTI mininster Margaret Hodge here.

It looks promising...

Friday 20 July 2007

Investors and climate change

A couple of plugs.

An article here on investment and climate change.

And a report from Trucost on the carbon footprint of investment funds.

FT editorial on the taxation of private equity

Forgot to post this yesterday. The Pink 'Un sets out in very unpolitical terms why the taxation of carried interest needs a revamp. All the signs are that the tax regime is in the Treasury's crosshairs...

The fair way to tax private equity
Published: July 18 2007 20:10 | Last updated: July 18 2007 20:10

Demands on both sides of the Atlantic for changes to the tax treatment of private equity managers are gathering force. Partly, no doubt, this is for bad reasons. Many of these managers have made fabulous sums in recent years. Such riches, and the boastful parties sometimes thrown to celebrate them, have drawn lascivious media attention. A desire merely to punish these extraordinarily successful financiers—whose clients pay without complaint—animates some of those calling for higher taxes. That is a harmful and unworthy instinct which ought not to be appeased.

The United States, even in its present mood of economic discontent, is less given than most countries to outbursts of animosity against the working rich. Strength of feeling on the subject is driven by the fact that the tax treatment of these managers, as compared to the treatment of other very highly paid individuals, really is anomalous. Take the anger and disgust away, and disinterested considerations of efficiency and fairness urgently demand a change.

At the centre of the tax issue is the treatment of ”carried interest”—an obfuscating term that simply means a share of profits, usually 20 per cent. Most of the compensation paid to successful managers takes this form. The other part, typically, is a fee calculated as a proportion of the assets managed; this is taxed as ordinary income, and gives rise to little controversy.

Carried interest, however, receives two great tax advantages. First, tax is deferred: it becomes due only when profits are realized. Second, the rate then levied is that for a capital gain, rather than that applied to ordinary income. In the US this means paying 15 rather than 35 per cent; in the UK as little as 10 per cent compared to 40 per cent higher-rate income tax. In this way, the burden is cut to much less than half of what would be paid by comparably successful chief executives or entertainment stars.

In both cases—deferral and treatment as capital gains—the underlying question is whether the funds’ managers are receiving income from an investment they have made, or a payment that is, in all but name, a performance-related fee. Managers may invest in their own private equity funds, in which case both tax advantages would rightly apply to that component of their income. But much the larger part of what they typically receive is exactly akin to a performance bonus, not a reward for capital put at risk, and to treat it otherwise for tax purposes is a gross distortion. Efforts are doubtless under way in other industries to disguise management fees as carried interest.

Correcting this anomaly might be done in different ways. To tax carried interest as ordinary income when granted would require an options-based valuation, which is not straightforward. Another complicated remedy would be to treat carried interest as an interest-free loan from the fund’s investors, and then collect tax in two parts: on the interest forgone, taxed as ordinary income, and on the subsequent capital gain, taxed at the current lower rate. But the simplest approach, and most likely the best, would be to set the question of deferral aside, and tax carried interest as ordinary income on realization. To emphasize, this would not be to single out private equity or hedge fund managers as deserving of a new or specially punitive regime. It is a matter of even-handedly applying the logic of the present tax codes.

This repair should be done at once. For another day are bigger questions of whether it ever makes sense to tax capital gains at a lower rate than ordinary income (the policy that gave rise to this problem in the first place), and in the American case, whether the tax system as a whole should be made more progressive. The case for reform on both points is strong, in fact. But the carried interest anomaly can be dealt with promptly, and should be.

Local authority pension funds look into human capital

More news from the Local Authority Pension Fund Forum. Hopefully more investor can be encouraged to develop an understanding of the importance of human capital management (or treating your workforce right in non-jargon).

Investors are being encouraged to engage with companies over human capital issues, following the publication of a trustee guide by the Local Authority Pension Fund Forum (LAPFF).

The guide, titled Unlocking Human Capital, is split into two sections – a set of core indicators of good practice in human capital management, and a section outlining how an engagement strategy can be developed around these issues.

The guide will enable pension fund trustees, officers or fund managers to review companies’ reporting on employment issues, and identify appropriate engagement strategies, in order to:
• Develop an understanding of the specific employment risks that individual companies face, and apply this to other companies in the same industry, in order that these risks can be mitigated through investor engagement.
• Discuss employment issues not only in the context of corporate responsibility but as part of an integrated approach to business strategy.
• Address a much neglected area of business strategy, the financial impact of which is commonly underestimated.

The Forum has a long-standing interest in human capital issues and has actively engaged with a number of FTSE 100 companies on their employment practices. The experiences from this engagement, and a set of core indicators for good workforce practices reporting which the Forum first published in April 2005 are the basis of this latest LAPFF Trustee Guide.

Cllr Darrell Pulk, chair of the Forum, said: “Companies frequently repeat the mantra ‘people are our greatest asset’ in their annual report. This trustee guide is intended to help investors start to get a grip on the extent to which companies actually put the words in to practice. We hope that the guide encourages investors to step up their engagement in this area.”

A copy of the trustee guide is available from the website, www.lapfforum.org, under ‘Publications'. The guide is available on request.

This guide is the third in a series of LAPFF trustee guides which the Forum has issued to support its members in their efforts to promote good corporate governance and corporate social responsibility in the companies they invest in.

Thursday 19 July 2007

FirstGroup, the Teamsters and UK shareholders

Check out John G's previous post for the background on this issue. The Teamsters statement is below. I'm a little bit off-message on this one as I do think there is some desire on the part of FirstGroup management to address these issues (if only to make them go away), but I'm sure colleagues from the US have a different perspective!

Harrassment And Intimidation Endured By First Student Employees

July 12, 2007

(Aberdeen, Scotland) – FirstGroup was told today that it should choose whether it wants co-operation or confrontation with its employees.

U.S. bus workers and British and American trade union officials told shareholders at FirstGroup’s Annual General Meeting in Aberdeen, Scotland that the company was suffering harm to its reputation because of the way it treats employees in the United States.

More than half of the meeting was taken up with an examination of the anti-union practices of First Student, First’s U.S. subsidiary which operates more than 20,000 yellow school buses.

Fifty complaints involving harassment and intimidation by First Student managers have been lodged with the National Labor Relations Board. Shareholders complained about the failure of FirstGroup-paid consultants John Lyons and Dan Roketenetz to provide the Board of Directors with accurate reports of their dealings with First Student workers in the United States.

Hope Lee, a First Student bus driver from San Diego told FirstGroup Chairman Martin Gilbert, “Roketenetz honestly did not tell shareholders the truth.”

Gilbert promised to look into Roketenetz’s performance and further pledged to investigate managers in Beaufort, South Carolina after U.S. federal regulators found merit in Teamster claims of anti-union activity.

Jim Hoffa, General President of the International Brotherhood of Teamsters, said: “We have educated the shareholders and, unless action is taken, they know that the abuse of workers in the U.S. is going to be a major problem for the company.

“This is just the beginning of workers’ efforts to achieve justice and fairness at First Student. Our campaign will continue to expand politically and globally.

“We are moving our campaign from the shareholders to the stakeholders, including the U.K. and U.S. governments, international human rights organizations and U.K. trade unions.

“We fully expect FirstGroup to engage with workers in the U.S. and treat them fairly as they do workers in the U.K.”

Shareholders at the meeting also asked why the company felt it necessary to employ Alastair Campbell, Tony Blair’s former spin guru.

Wednesday 18 July 2007

Unions critical of Walker review

Perhaps not the greatest surprise, but the unions have not reacted positively to the voluntary self-regulation of private equity proposed by the Walker Review. See responses from the TUC, GMB and Unite. The principal criticism is the failure of the review to deal with the issue of employee rights.

The FT reports that John McFall of the Treasury select committee is equally unimpressed. There's a fair (in my view) take on the review in The Times, which describes it as "the lightest of light touch self-regulation".

Tuesday 17 July 2007

Private equity review

The Walker Review - focusing on the transparency of the private equity industry - has issued a consultation document today. You can download here, I will try and post something further about it later in the week.

FT Alphaville summary here.

Monday 16 July 2007

Trustee recruitment

Slightly worrying if this report in Professional Pensions is accurate. With the Government committeed (under the Warwick agreement) to up member representation on trustee boards to 50% there's going to be a bit of a recuitment issue by the looks of it.

The importance of overseas ownership

I posted at the end of last week about the change in ownership of UK shares and the implications this has for companies. The current situation at Vodafone provides a good example. The news that US proxy voting firm Glass Lewis has backed rebel shareholder proposals has attracted quite a bit of coverage (see the FT and Finance Week for example).

Normally the business pages wouldn't cover a US proxy voting firm's recommendations on a UK company, which suggests to me that ECS (the outifit behind the resolutions) has been pushing this to the press. Several reports state that a third of Vodafone's shares are held by North American investors. However, as the stats I posted last week show, having a third of your shares held by overseas investors is pretty much the typical market position. And the overwhelming bulk of the overseas ownership is accounted for by North American investors.

In other words the presence of large US investors isn't (or shouldn't be) that newsworthy. It's just that the journos who write up these stories probably aren't aware of this.

Sunday 15 July 2007

Investor revolt at Cable & Wireless

From Today's Observer. Looks like it could be a close vote.

C&W faces rebellion on windfalls for executives

Oliver Morgan
Sunday July 15, 2007
The Observer

Cable and Wireless is facing a major rebellion by shareholders over executive pay at its annual general meeting this week.

The Association of British Insurers has warned companies that they cannot expect support for controversial executive pay packages similar to that proposed by Cable and Wireless even if the scheme is voted through at its AGM.

Investors are expected to give C&W chairman Richard Lapthorne a rough ride at Friday's meeting and to vote against the company's pay scheme in large numbers.

The scheme was updated last month, introducing measures that could see Lapthorne pocket £11m over three years as part of an incentive scheme. Investors are also concerned at the removal of a £20m cap on arrangements for chief executive John Pluthero and international business head Harris Jones.

Last year the package was passed by investors only after the cap had been put in place. Pirc, the corporate governance body, said the company was removing a commitment it had given to ensure shareholder support last year, and would therefore advise investors to vote against the remuneration report at the AGM.

A Pirc spokeswoman said: 'We have concerns about the targets and about the level of reward with the cap in place, so the fact that it has been removed exacerbates that concern.'

Peter Montagnon, head of investment affairs at the Association of British Insurers, said: 'Other companies should not assume that, even if C&W wins the vote, they will receive support from investors if they propose similar schemes.

A spokesman for C&W said the company had carried out extensive consultation with major shareholders and the ABI.

Friday 13 July 2007

Now That's What I Call Political Music 2

I posted before about top political tune-age. Here are some new ones. Doomer has suggested some but I only know one of them!

Status Quo - Papa Brittle
This Is The ALF - Conflict
Big A Little A - Crass
Apathy - 1000 Homo DJs
Power In The Blood - Alabama 3
Live Free Or Die - Lard
Renegades Of Funk - Rage Against The Machine cover version
Don't Stand In Line - Pailhead
Invasion - Chumbawamba
Here's Johnny - Blaggers ITA
Crackdown - 25th of May

Doomer's list -

Fugazi - 5 Corporations
Inner Surge - Branding the Muse & When the Door Locks
Dead Prez - 'They' Schools
Amen - Money Infection

Changes in share-ownership

Thanks to my class traitor colleague at "the leading voice of workplace pensions in the UK" for flagging this one up. The ONS has just released its annual stats on UK share ownership, which show how the ownership "pie" is sliced up.

As long as I have been interested in workers' capital we have been talking up the fact that we notionally 'own' the UK's companies through our pension funds. But the ONS stats suggest that now UK pension funds' share of the domestic equity market is only equal to that held by individuals (13% in each case).

Actually it's probably still quite a bit higher as some of the money classed under insurance companies, unit and investment trusts and "other financial institutions" will also come from pension schemes. But the trend is definitely away from domestic equities. Interestingly the share held by overseas investors keeps going up. A large chunk of this will be North American pension funds. Given that the unions there are the leaders in the workers' capital movement this might open up some interesting opportiunities.

Thursday 12 July 2007

Pensions - the bad news

There has been a string of stories in the news lately that point up the ongoing pain we are likely to face in relation to pension provision. Today's FT reports that life expectancy is rising more quickly than actuaries have allowed for. That's good news - obviously! But just as obviously it puts a further strain on the funding of pensions.

As the FT states -

A one-year increase in life expectancy could increase the total UK private sector pensions bill by £30bn-£40bn. It could also force life insurers to add £3bn -£4bn to their reserves. The projections could wipe out gains in pension scheme solvency that have come about through rising markets and increased provision.

Meanwhile occupational scheme membership is dropping. ONS stats show that membership dropped by 500,000 between 2004 and 2006, with 200,000 less active members of schemes in the private sector, and a slight increase in active membership in the public sector (remember this!). The remainder of the fall was in pensions in payment (you work it out...).

The decline in active occupational scheme membership is of course driven by the closure of such schemes to new members. According to the Association of Consulting Actuaries 4 out of 5 defined benefit schemes are now shut to new members. See this report.

More worrying is that the trend in employer contributions to the new DC schemes that are being set up is, apparently, downwards. From the ONS Stats -

From 2004 to 2006, total contribution rates to private sector open defined contribution schemes decreased by 0.2 percentage points to 8.9 per cent of pensionable salary. Member contributions increased slightly from 2.9 to 3.0 per cent while employer contributions declined from 6.2 to 5.8 per cent.

This suggests that the newer DC schemes being set up (as employers switch over from DB) are less generous. I wouldn't be surprised to see this continue going forward.

The labour movement is often very good at misinterpreting victories and defeats. Put simply, we got spanked in the private sector, and the collapse of DB provision there is a massive defeat. However, in contrast we have done well to hold the line in the public sector. We should keep this is mind, rather than seek to play down what has been achieved, or even suggest it's been a defeat. We would not have achieved what we have without a Labour government, and if the Tories get back in next time expect to face a major attack on the public sector schemes. One to remember next time you feel tempted to engage in a bit of "friendly fire" against Gordo over pensions.

New responsible investment website

A quick plug for a new website that will probably be interesting to quite a few of you. Here’s the blurb:

Welcome to the beta launch of Responsible Investor (http://www.responsible-investor.com), the first environmental, social and corporate governance web site focusing exclusively on the information requirements of institutional investors. If you’re reading this you are part of a global investment community that is increasingly aware of the need to balance investment returns with environmental sustainability, social concerns and best practice in corporate governance.

Wednesday 11 July 2007


The union campaign around private equity continues. The TUC has held a meeting with some of the key buyout firms, and a productive one by the sounds of it. Here’s the blurb!

At the invitation of TUC General Secretary Brendan Barber, this morning representatives from trade unions and the BVCA met for a roundtable discussion at Congress House. At the invitation of the BVCA, another meeting is planned for the autumn.

The tone of the meeting was positive and while there is much ground still to be covered, both parties believe a good start has been made.

TUC General Secretary Brendan Barber said: "I welcome the opportunity for dialogue between unions and private equity. Our concerns about the growth of private equity are well known, but with private equity now employing one in twelve of the private sector workforce it makes sense for trade unions to engage with an increasingly important group of employers."

BVCA Chairman Wol Kolade said: "Today's meeting is the first of two planned roundtables. We look forward to these meetings and to an open exchange of views. We hope they set a pattern of regular dialogue between the BVCA and the TUC."

The meeting involved representatives from 3i, Apax Partners, Bridgepoint, BVCA, CBI, CVC, Hermes Private Equity, ISIS Equity Partners, KKR, Lyceum Capital, Permira, ETUC, GMB, TUAC, UNI, Unite - Amicus, Unite - T&G and the Party of European Socialists.

Tuesday 10 July 2007

Investor pressure over exec pay

There has been a string of AGMs lately where investors seem to be pushing back on executive pay arrangements. A fairly common problem is that companies are arguing that they need to pay their directors even more to stop them taking private equity's dollar. I'll write more about this when I have more time, but the bit below from The Grauniad sets the tone quite well. The Cable & Wireless AGM next week might see a bit of a spike in votes against management.

Investor pressure mounts to curb boardroom bonuses

· Pay schemes at M&S and C&W run into opposition
· Telecoms company fights to raise payout ceiling

Julia Finch
Thursday July 5, 2007
The Guardian

Some of the UK's biggest companies are facing pressure from shareholders to scale back directors' pay deals and set more challenging targets for boardroom bonus payouts.

Marks & Spencer has been forced to set a tougher target for its chief executive, Stuart Rose, to achieve maximum payouts and Cable & Wireless is facing a substantial vote against changes to its pay plan that could reward its chief executive, John Pluthero, with more than £20m and provide a bonus payout to the group's part-time chairman, Richard Lapthorne.

Last week some 18% of Tesco shareholders refused to back a new pay scheme for chief executive Sir Terry Leahy that could generate up to £11.5m if the grocer's new convenience store chain in the US proves successful. The Association of British Insurers, whose members speak for 20% of UK-listed shares, designated the Tesco scheme as an "amber top" on concerns that the scheme set a precedent in rewarding Sir Terry for the results achieved by only one part of the business.

The amber rating is the middle of three rating levels, between a blue for no problems and red, which urges investors to vote against. Amber urges shareholders to consider the issue carefully and make up their own minds.

Last year Mr Rose, who has engineered a turnaround of M&S, was handed a pay package worth £3.9m and promised shares worth four times his salary - an additional £4.5m. Together with two other board directors he was promised the same again this year if he produced a pre-set level of earnings per share. M&S introduced the scheme only a year ago and insisted at the time that the maximum payout was only to be used in "exceptional circumstances". A spokeswoman explained that the rewards were required "to ensure these people are retained".

After consultations with shareholders the eps target has been set higher and the ABI has awarded it a blue top. However, the shareholder group PIRC - which advises local authority pension funds - still opposes the scheme, describing it as "excessive".

The ABI has given the proposed C&W scheme an amber rating. The telecoms group introduced a new "private equity style" pay package for 60 senior executives last year, which could pay out up to £216m by 2010. Under the terms of the original scheme the two most senior men - Mr Pluthero and Harris Jones - stood to make more than £20m each if they more than doubled the C&W share price. After pressure from the ABI the company agreed to a £20m cap - but the company has asked shareholders to scrap that ceiling at its annual meeting on July 20.

PIRC is urging its members to vote against the scheme, saying the targets "are not considered challenging". It is also urging shareholders not to support the re-election of Mr Lapthorne, who is in line for a bonus of up to £10m if he meets performance targets.

Mike McKersie at the ABI said he did not believe pay was spiralling out of control but said investors had to be mindful that it could. "It is like inflation", he said. "If you are not vigilant in the early stages then it is difficult to pull it back."

He added that shareholders were not completely convinced by the "alleged pressure" on pay exerted by some of the "mind-boggling" rewards available in private equity. "More people think they could go off and earn large amounts [in private equity] than could actually do it".

Sunday 8 July 2007

Local authority funds probe BAE

From today's Observer, there's a mention of Unison in there too -

Defence firms face bribery probe by pension funds

Oliver Morgan, industrial editor
Sunday July 8, 2007
The Observer

Local authority pension funds are to tackle arms companies about their activities, including allegations of bribery levelled at the UK's biggest defence contractor BAE Systems.

The Local Authority Pension Fund Forum (LAPFF), which represents 40 funds with invested assets totalling £70bn, is drawing up a series of questions to put to defence companies as it seeks to encourage responsible investment by pension funds.

Among the areas to be probed will be the conduct of companies in winning contracts, including the use of bribery. Both BAE and the government are at the centre of a political storm over the issue, following the abandonment of an investigation by the Serious Fraud Office into bribery connected to the £40bn al-Yamamah arms deal with Saudi Arabia in the Eighties and Nineties.

The news comes as the pressure group Campaign Against Arms Trade (CAAT) publishes figures showing that 75 local authority funds have a total of £311m invested in BAE.

CAAT made requests under Freedom of Information rules for details of investments in BAE at the end of December last year from all of the UK's local authority pension funds. The results show holdings ranging from £27.9m by the West Yorkshire Pension Fund to an investment of £128,437 from the Powys fund.

Symon Hill of CAAT said: 'BAE's reputation has plummeted in recent months. Local residents and council employees have a right to know how employee pensions funds are invested.'

Hill pointed to a vote at the recent conference of public service sector union Unison, which represents local government employees, for an end to investment in arms companies. Unison said the amount of money invested was 'phenomenal' and that it was 'disgusting'. Hill added: 'Any council can enhance its reputation by getting rid of these shares.'

Of the 99 funds surveyed by CAAT, 24 had no investment in BAE.

The LAPFF will be seeking talks with defence companies in coming months to raise a wide range of concerns, including the allegations against BAE, as well as the relationship between arms companies and governments, the use of technology, and the way labour is exploited.

A spokesman said the forum's policy was still being prepared, but that engagement would begin later this year. He said LAPFF concerns were not rooted in pacifism but reflected its desire for 'responsible investment'.

The CAAT showed that West Yorkshire had the largest investment in BAE, with West Midlands in second place with £16.8m, Strathclyde in third with £11.4, followed by Kent with £11.2m and Aberdeen with £10.6m

Saturday 7 July 2007

Local government pension funds challenge Government's climate change targets

From the Professional Pensions website -

LAPFF urges government to toughen climate change rules
by Jonathan Stapleton 06-07-2007

GOVERNMENT should adopt more rigorous targets than those set out in the draft Climate Change Bill, the Local Authority Pension Fund Forum urges

The group of 40 council schemes, which together hold assets of around £75bn, said the proposed legislation calls for at least a 60pc cut in carbon emissions by 2050 – but called for a target of at least 80pc to be set.

It explained that the 60pc level did not reflect the current consensus – which includes the views of the House of Commons select committee on environmental audit and the Stern review.

The LAPFF also said the government should use the Bill to make corporate reporting on greenhouse gas emissions mandatory.

LAPFF chairman Darrell Pulk said: “The time for discussion about possible effects of climate change has passed. Companies should now have in place risk management procedures as part of their business strategies as well as identifying relevant business opportunities.

“They must then follow through with this and report on these to their investors in their operating and financial or business reviews. They will further need to demonstrate to their shareholders that the business is well placed to produce cuts that will be required as a result of climate change legislation.”

This follows an ongoing engagement programme by the LAPFF – action which has led to several FTSE100 firms starting to report emissions.

Thursday 5 July 2007

Another City investor trying to fund the Tories

Check out Caledonia Investments. The text below is a direct lift from the company's information backing its decision to seek authorisation to donate £60K to the Tories. Read the original here (resolution 15).

Resolution 15: Approval to make political donations

Part XA of the Act (as amended by the Political Parties, Elections and Referendums Act 2000) prohibits a company and its subsidiaries from making donations of more than £5,000 in any 12 month period to organisations within the European Community which are, or could be, categorised as EU Political Organisations (as defined in the Act) unless prior shareholder approval has been obtained to make such donations.

The Board has been concerned for several years by the increasing proportion of the country’s gross domestic product spend being taken up by the public sector with the resultant requirement for higher taxation and also by the increasing burden of legislation with adverse cost and operational effects on business. Both of these issues contribute towards making businesses in this country less competitive in world markets and have an adverse effect on the performance of Caledonia’s investment portfolio.

The Board believes that a Conservative government would seek to reduce both government expenditure and legislation, which would be of benefit to business in general and to the Group’s business and therefore Caledonia’s shareholders in particular.

Accordingly, the Board is seeking Ordinary Shareholders’ approval to make donations of up to £60,000 in aggregate to the Conservative Party, an amount which would represent less than one-third of one per cent. of the cost of the Company’s annual
dividend to shareholders.

This approval, if granted, will last until 1 January 2009 or, if earlier, the conclusion of the next annual general meeting of the Company.

Fidelity Investments funds the Tories

According to the Electoral Commission website, fund manager Fidelity Investments gave the Conservative Party £40,000 in February this year. Overall in the past three years they have given the Tories over £350K. To check it out use the website below -


I am not a Conservative supporter (!) but I don't think that fund managers should donate to ANY political parties. Political donations of this kind are no no in the corporate governance world, and many fund managers vote against companies they invest in when they try to do exactly this.

Worth checking out if your pension fund has any relationship with Fidelity. Let's try and get them to get rid of this partisan political stance - or lose our business.

Fund managers claim to be transparent

According to the Investment Management Association (trade body for the UK asset management industry) fund managers are becoming more
transparent in respect of voting and engagement activity. Its annual
survey of fund manager engagement was published this week and is worth a read. You can download it here. It should really be read alongside the recent TUC and LAPFF reports.

Here’s some of the IMA’s blurb:


IMA's latest annual survey on fund manager engagement with companies shows that the level of transparency is increasing. The survey is the most comprehensive of its kind covering 33 firms, managing £640 billion of UK equities, representing 68% of the market. The trend is increasingly for engagement to be integrated into the investment process, complemented by regular dialogue with senior management and monitoring which allow firms to vote and engage objectively on an
informed basis.

All 33 firms in the survey have a policy to vote all their UK shares.
All now report to clients providing explanations of their decisions - especially when they have voted against the Board - together with details of engagement other than voting.

Firms are also increasingly making details of voting and engagement public by putting them on their websites with 16 currently doing so (representing 53% of the sample in terms of ownership of UK equities), and others planning to do so in the future.

Other survey findings include:

* all the firms have policy statements on engagement, 26 of which are made public on their websites;
* 24 firms include their policy on voting in both new and existing agreements, compared to 21 in 2005 and 19 in 2004;
* engagement is integrated into the investment process - in 18 firms final voting decisions on controversial issues are taken at a senior level and in a further 14 the portfolio managers are actively involved;
* the majority of firms have staff dedicated to engagement with these resources increasing by just over 5% over the last year and in the previous two years by just over 10% per year; and
* 27 firms provided details to IMA on how they had voted which showed that there are fewer votes against the Board or conscious abstentions than in previous years, suggesting that regular engagement is improving understanding between companies and investors.

Wednesday 4 July 2007

Two plugs

Super-quick update to plug the rather good GMB pensions site here.

And John Gray's ace post on workers' capital here.

Tuesday 3 July 2007

US union investor group dislodges CVS/Caremark director

I blogged a while back about the Change to Win campaign against Roger Headrick. Having provoked a significant shareholder rebellion against Headrick, the CtW Investment Group had called for him to step down. And now they've finally got their man -

July 3: CtW Investment Group Statement on CVS/Caremark director Headrick’s resignation

Last night, CVS/Caremark shareholders succeeded in removing embattled director Roger Headrick from the company’s board of directors and, in so doing, holding him accountable for his past failures to protect Caremark shareholders. As lead independent director and audit committee chair at Caremark, Mr. Headrick bears principal responsibility for approving a sweetheart deal with CVS that nearly cost shareholders $3.3 billion and for the ongoing DOJ and SEC investigations into possible stock option backdating.

Mr. Headrick’s resignation required extraordinary efforts after the CVS/Caremark board initially failed to respect the shareholder vote in its May 9 director election. In addition to communications from major institutional shareholders—including the California Public Employees’ Retirement System, New York City Comptroller William C. Thompson, Jr. and North Carolina State Treasurer Richard H. Moore—members of the House Committee on Financial Services questioned SEC Chairman Christopher Cox regarding the impact of the broker vote on Mr. Headrick’s tainted election during last Tuesday’s hearing on investor protection and market oversight.

The adoption of majority vote standards in director elections by hundreds of companies, including CVS/Caremark, should finally make director elections meaningful. The extraordinary measures required to remove Mr. Headrick, however, underscore the need for swift SEC approval of the NYSE proposal to eliminate the broker vote in all director elections to ensure their integrity going forward.

NAPF defends private equity tax treatment

There's a particularly craven letter from the NAPF in today's FT about the taxation of private equity partners. Read it here.

The broad messages are:

"what do we care about the growing wealth gap".

A successful private equity manager takes home amounts that are often 10 and sometimes 100 times what a middle-ranking executive earns in a public company, let alone the cleaner. Such sums are an easy target for the envious (and that means most of us, at least some of the time), but irrelevant to institutional investors.

"we have no choice but to hand over your money to these brilliant people"

in a world awash with financial capital, those of us with nothing else to trade must pay up for access to the intellectual capital of the best groups.

and "did we mention how weak at the knees we go in the face of these amazing business giants"

our chief regret is that we find it difficult to keep enough money invested. General partners' habit of giving our money back to us, before we have another use for it, is inconvenient for us, but evidence of their sharp focus. We need them on our team.

Pass the sick bag.

Monday 2 July 2007

Schroder climate change fund

Just spotted this, though it's a few weeks old. First retail investment fund I have seen that focuses on climate change.

Schroders announces the launch of the Schroders Global Climate Change Fund which opens to investors in September 2007*. The fund is the first of its kind in the UK, offering investors exposure to companies involved in mitigation of (measures to reduce carbon dependency), or adaptation to (changes to adapt to the consequences of), the effects of climate change on a globally diversified basis.

The aim of the Schroders Global Climate Change Fund is to provide long term outperformance of the MSCI World Index from a concentrated portfolio of 50 to 80 stocks comprising the best stock ideas from the fund’s joint managers, Simon Webber and Matthew Franklin.

Stocks will be selected and weightings determined independently of the Index.

Simon Webber, Joint Fund Manager of Schroders Global Climate Change Fund commented: “Investors simply can’t afford to ignore the realities of climate change. Across all sectors, climate change will have a broad and lasting impact along the value chain. For the mainstream equity investor, now is the time to adopt a global approach to what will be a major investment theme for the foreseeable future. Crucially, Schroders has the capability to take a global approach to a global challenge – enabling us to identify the broadest possible opportunity set”

Schroders has established a proprietary database of companies where the effects of climate change have a significant impact on the long-term investment case. Having established the investment universe, the team will focus on the very best ideas that have been identified by Schroders global equity team and locally based equity portfolio managers and sector specialists.

Simon Webber and Matthew Franklin (Joint Fund Managers) will be supported by a team of climate change specialists, global sector specialists as well as Schroders’ wider global network of 80 experienced large and small cap analysts.

Mike O'Brien is new pensions minister

According to press reports last week Mike O'Brien is our lastest pensions minister. See the Indie for example.

Here's his entry on They Work For you.

And this bit on The Grauniuad website.