DC investors divided on split voting and stewardship PLSA debate reveals

Investors for UK Defined Contribution Schemes disagree on the merits of split voting for pooled funds, with the vast majority placing their faith in asset managers when it comes to stewardship, a debate at this years’ PLSA Investment Conference in Edinburgh revealed.

The question of split voting, the practice of letting clients in pooled funds vote on their shares, is gaining increased prominence among institutions in the UK, particularly among DC Master Trusts, which due to regulatory- and cost constraints tend to be invested in index-based strategies.

The UK’s defined contribution sector has been growing rapidly since the introduction of automatic enrolment some 11 years ago, with the country’s 36 authorised master trusts now managing more than £52bn in assets.

Trustees also face increasing pressure from the UK’s pensions regulator to report on their engagement and stewardship efforts around climate change. 

But both the panel and the audience were divided on how best achieve this, with some challenging whether split voting was a useful tool.

Being a passive investor was no longer an excuse to remain silent on climate concerns said Sarah Wilson, CEO at ESG data provider Minerva Analytics. 

“Delegation does not come with abrogation,” she stressed.

Minerva Analytics has teamed up with the asset manager DWS to offer a split voting tool to investors, placing Wilson firmly in the camp of advocates. 

“Shareholder voting is a bit like the pencil you should be using when you are taking notes, it is the thing that focusses your mind as you are taking your responsible investment policy, putting it down on page and thinking about bringing it to live. It is about reinforcing the values of your fund and making sure that your investment strategy is all fully connected” she said.

This sentiment was echoed by Samantha Chew, stewardship lead at Aegon UK, who argued that voting and engagement were even more important for index investors, because they did not have the option to divest. 

But while Aegon closely liaises with asset managers, Chew also believes that when it comes to actually executing the votes, this should best be left to asset managers. 

“Split voting could divorce voting positions by asset owners from the engagement done by asset managers and that could lead to potentially ill-informed votes” she warned.

This statement resonated with a majority of asset owners in the audience. 

Some 54% of investors have delegated their stewardship to an asset manager and only 11% of respondents said they had a dedicated in-house stewardship team.

In addition, 43% of investors believed that asset managers were best placed to lead on voting decisions while 20% thought that asset owners should vote themselves.

The survey also revealed that there was so far very little pressure on asset managers to comply with pension funds’ stewardship expectations on climate change. 

While just under half of respondents said that they had assessed their asset managers’ stewardship and voting record, and 17% had asked asset managers for improvement, not a single asset owner had actually reallocated capital because they were dissatisfied with an asset managers’ stewardship record.

But this cautious approach to stewardship might change with the rapid growth of the UK’s DC market, which is expected to hit more than £1trn by 2042, according to research by the Pensions Policy Institute. 

This could increase capacity to set up in-house responsible investment teams and in turn to take stewardship and voting efforts in house.