Rule 2.2.3R of the Financial Conduct Authority (“FCA”) Conduct of Business Sourcebook (“COBS”) requires QSM, as an FCA-authorised firm that manages investments for professional clients, to disclose the nature of its commitment to the Financial Reporting Council’s (“FRC”) UK Stewardship Code (“Code”) or, where it does not commit to the Code, its alternative investment strategy.

The Code aims to enhance the quality of engagement between asset managers and companies to help improve long-term risk-adjusted returns to shareholders and promote the efficient exercise of governance responsibilities, and, effective from 1 January 2020, was updated to apply to a broader range of investment strategies, other than purely listed equity, and to reflect the growth of environmental factors, particularly climate change, as well as social and governance factors (together, “ESG”) as material issues for asset managers to consider when making investment decisions and undertaking stewardship.

The Code defines stewardship as ‘the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society’.

There are twelve principles of the Code that apply to asset owners and asset managers. These are grouped under four headings:

Purpose and Governance

• Purpose, strategy and culture
• Governance, resources and incentives
• Conflicts of interest
• Promoting well-functioning markets
• Review and assurance

Investment Approach

• Client and beneficiary needs
• Stewardship, investment and ESG integration
• Monitoring managers and service providers

Engagement

• 9. Engagement
• 10. Collaboration
• 11. Escalation

Exercising Rights and Responsibilities

• Exercising rights and responsibilities

The FRC requires that firms intending to be signatories to the Code produce an annual Stewardship Report explaining how they have applied the Code in the previous 12 months. The FRC will evaluate these reports against an assessment framework and those firms meeting the reporting expectations will be listed as signatories to the Code.

Adherence to the Code is voluntary. Although QSM generally supports the objectives that underlie the Code, the provisions of the Code are not considered to be relevant to the activities undertaken by the Firm. The Firm has chosen not to commit to the Code for the following reasons:

• QSM invests in liquid Global equities.  Given the Fund’s focus on liquidity, it is highly unlikely that holdings will represent a meaningful portion of issued shares.
• The nature of the Firm’s investment process is such that it is unlikely to meet with company management. 
• QSM will, however, exercise voting rights on all shares.

If QSM’s investment strategy changes in such a manner that the provisions of the Code become relevant, the Firm may amend this disclosure accordingly.

Under COBS 2.2B.5R, QSM is required to either develop and publicly disclose an engagement policy that meets the requirements of the Shareholder Rights Directive (“SRD II”) or to publicly disclose a clear and reasoned explanation of why it has chosen not to develop an engagement policy that meets the SRD II requirements.

QSM has chosen not to develop an engagement policy that complies with the requirements of SRD II, as the Firm considers that it has an investment process and strategy that is not commensurate with the outcomes sought thereunder.

QSM invests in liquid Global equities.  Given the Fund’s focus on liquidity, it is unlikely that holdings will represent a sufficiently meaningful position to enable any constructive engagement or monitoring.  Furthermore, the nature of the Firm’s investment process is such that it is unlikely to meet with company management.  QSM will, however, exercise its voting rights on all shares.

For further details on any of the above information, please contact Rob De La Mare (Rob.Delamare@qsmasset.com).