Lucrecia Tam, a senior investment director at Cambridge Associates, discusses the importance of stewardship with Andrew Holt, Deputy Editor at portfolio institutional.
What for you are the key component parts of effective stewardship?
The way we approach stewardship is to evaluate the culture that is set in the context of long-term ownership – our clients are invested with a long-term view and that is how we build their portfolios.
As part of our thorough due-diligence process, we look for asset managers that have a clear purpose and clear objectives aligned with their stated mandates, especially those that are sustainability labeled. We also check that adequate resources are being allocated to address the stewardship function.
It is important that asset managers have a policy to put clients first and they must be able to respond to market systemic risks. We are setting pathways for net zero, which is a global systemic risk, and we need the ability to respond efficiently to such risks.
And finally, the ability to review policies and processes to ensure managers align with the relevant codes – the UK Stewardship Code is probably the most progressive.
Culture and strategy are therefore important. What initiatives are key to ensuring that the culture and strategy promote effective stewardship? And what actions have Cambridge Associates taken in this regard?
Stewardship sits at the heart of everything we do for our clients.
Clients rely on us to invest their capital responsibly. We engage with asset managers who in turn need to be regularly engaged with companies. This creates a stewardship ecosystem strengthened by capital allocation.
We consider ourselves to be pioneers in sustainable investing. We have taken several steps in our stewardship practices and challenge ourselves to create change with our managers through our stewardship. We have our own reporting on stewardship responsibilities too.
To do all this, we have established a special section of our research platform to track manager engagement oversight.
The UK Stewardship Code has shifted the dial on stewardship. Is it effective and all embracing?
We are global investors and see different stewardship codes and, although it is not all embracing, it is the most progressive. Particularly in reference to the reporting on certain asset classes: real estate, infrastructure, fixed income, etc.
More importantly, it sets the bar high for asset managers to report. As a global investor we tend to apply best practices everywhere. So we have the same high expectations of managers in the US and Asia, as well as the UK and EMEA.
How important is stewardship to Cambridge Associates’ clients?
It has become increasingly important. It is something clients are asking for on a higher than ever level. A big factor in this has been the alignment net zero, a difficult and complex task and our clients have needed more stewardship to get the transparency they need in this regard. We work with our clients to create a net-zero pathway that offers that same alignment. It is fair to say that since net zero has come into play, stewardship has become increasingly important.
How do you include stewardship metrics in your due diligence process when assessing managers?
We look at different aspects. We look at stewardship reports, the activities managers have been involved in, and how they have been voting. More importantly, we are supporting mangers in helping companies to move to a better position. We are here to help and steer managers.
Do you see any parts of stewardship that investors are failing to address and why?
One example that hasn’t been addressed, which is topical at the moment, is artificial intelligence (AI). We need to understand and address the ethical and ESG implications and challenges from AI. As an issue it is moving very quickly. We have to be careful about how managers are using AI, but it is early days.
How can stewardship be improved going forward?
There are some changes needed. There is a gap in the various stewardship approaches in different countries. Particularly, more clarity is needed in collective activism. Our clients invest globally. They don’t just invest in the UK and there is a gap between different geographic areas.
Stewardship should be applied as best practice. Our clients will continue to demand more effective stewardship which will help accelerate change in the future.
Anything else you would like to add on the issue of stewardship?
There is an issue around the size of the asset manager. Niche and boutique managers do not have the capital power and allocation that speaks to emphasise their purpose and their goals. There needs to be more co-operation, so smaller players can have a say.
Capital at Risk. Cambridge Associates Limited is authorised and regulated by the Financial Conducts Authority in the conduct of investment business. This communication is for professional investors only.