UK Stewardship Code

Under Rule 2.2.3R of the FCA’s Conduct of Business Sourcebook, an FCA authorised firm managing investments for a professional client is required to disclose a statement about the nature of its commitment to the UK Financial Reporting Council’s Stewardship Code (the "Code").

The Code is voluntary and sets out a number of principles relating to investor engagement. Investors that commit to the Code can either comply with it in full or choose not to comply with aspects of the Code, in which case they are required to explain their approach.

Theleme Partners LLP ("the Firm"), on behalf of its clients, pursues a fundamental investment strategy across global listed equity markets. The Firm’s approach is to exercise underlying clients’ rights as a shareholder in a manner that seeks to serve clients’ best interests, as determined by the Firm in its discretion, taking into account relevant factors, including, but not limited to, the impact on the value of securities and the anticipated costs and benefits associated with any proposal to be put to a vote.

The Firm takes a global approach to investing and, while the Firm generally supports the objectives that underlie the Code, it is not considered appropriate to commit to a particular voluntary code of practice relating to a specific jurisdiction.

 

Shareholder Rights Directive II

Under Rule 2.2B.5R of the FCA’s Conduct of Business Sourcebook, an FCA authorised firm investing in shares on behalf of investors is required to:

- Develop and publicly disclose on its website, an engagement policy that meets the requirements specified in the amended EU Shareholder Rights Directive (Directive 2007/36/EC); and

- Publicly disclose on an annual basis how its engagement policy has been implemented, including a general description of its voting behaviour, an explanation of its most significant votes and details of its use of the services of proxy advisors,

or, in either case, to publicly disclose a clear and reasoned explanation of why it has chosen not to comply with those requirements.

 

Theleme Partners Engagement Policy

The Firm, on behalf of its clients, seeks investment opportunities across global listed equity markets. The Firm supports the general principles of shareholder engagement and, where it is considered to be in the best interests of its investors, engages with investee companies to provide feedback on matters that could impact investment performance, including on environmental, social and governance issues. Such engagement is typically conducted in the form of calls and meetings with company representatives, correspondence with company management and voting.

1. How the firm integrates shareholder engagement in its investment strategy

We meet management on a regular basis to discuss governance, strategy and the creation of shareholder value. We consider this to be part of the core responsibility of the investment team.

We seek to access senior management and exercise soft pressure to work collaboratively. We aren’t public activists but we privately try to engage and share best practice. This process of engagement can sometimes take place over a number of years, given our long term investment time horizon.

2. How the firm monitors investee companies on relevant matters?

We continuously analyze all investee company and competitor reports and presentations. We have meetings with the investee companies on a regular basis to get updates on progress made regarding the following issues:

- Strategy;

- Financial performance;

- Senior management incentive programmes;

- Progress made on publicly stated ESG targets including carbon emission targets.

In addition, we look at third party reports to ascertain whether a certain industry/company has a particularly high carbon footprint or environmental impact, this includes monitoring third party ESG ratings given to the investee companies.

3. How the firm conducts dialogue with investee companies

We have regular meetings and calls with senior management of investee companies. The level of engagement with an investee company varies case‐by‐case, depending on the company’s willingness and appetite to engage.

We generally do not make public statements and prefer private and confidential engagement rather than public confrontation.

We share what we consider to be best industry practice with investee companies. In particular, we may discuss margins, return on investment capital, free cash flow, capital allocation and senior management incentives.

4. How the firm exercises voting rights and other rights attached to shares

The Firm will generally vote on all resolutions. We tend to vote in line with recommendations provided by ISS, unless we have a strong view to the contrary. For routine votes, the lead analyst on the stock reviews the resolutions and will generally vote with ISS recommendations. However, if the analyst has a view that the Firm should vote differently, if for example the vote pertains to certain governance policies (where ISS will generally always give the same recommendations) he or she may provide a different voting instruction without discussing with the wider investment team. In the case of significant votes, the analyst will escalate to the wider investment team for discussion before deciding how to vote, and may also engage with the company ahead of the vote.

5. How the firm cooperates with other shareholders, and communicates with relevant stakeholders of the investee companies

Theleme has no objection in principle to collective action by investors and will consider any specific action on a case by case basis. However, Theleme will generally act on its own when engaging with or expressing concerns to investee companies.

As a matter of policy, Theleme will not agree to vote in concert with other investors unless pre‐approved by the Chief Compliance Officer.

Subject to underlying client confidentiality and investment strategy reasons, where requested (or as required by law), Theleme may disclose to a client or a client’s fiduciaries the manner in which voting was exercised on behalf of a client, however, it may not be appropriate to disclose voting actions at a detailed level.

6. How the firm manages actual and potential conflicts of interests in relation to the firm’s engagement

Theleme maintains a robust policy on managing conflicts of interest in relation to stewardship which is designed to ensure its decisions are taken wholly in the interest of its clients. All personnel are requested to notify the Chief Compliance Officer (“CCO”) if they become aware of any material conflict of interest arising, including in relation to proxies on behalf of clients. Voting instructions will be subject to assessment and approval by the CCO in such circumstances.

 

Disclosures

The funds and portfolios managed by Theleme Partners LLP can hold large and concentrated positions in listed companies and, as a result, the disclosure of voting behaviour and of significant votes could have material impact on stock prices and not be in the best interest of its clients and of the investors in the funds it manages. On this basis, Theleme Partners LLP has chosen not to comply with the requirement to publicly disclose on an annual basis how its engagement policy has been implemented.

The Firm will periodically review its position with regard to the requirements described above.