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How fund managers use their size to influence change.
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
Fund managers can have lots of money invested in companies – they can have a pretty big stake.
That means they can make sure their voices are heard on issues they think will benefit investors. Voting at an Annual General Meeting is just one way to get a management team’s attention. But fund managers can also engage directly with company directors to get their ideas heard.
Lots of fund managers use their bargaining power to push positive change. That might include cost-cutting measures, or changes to a company’s senior management. But some fund managers go a step further.
Some lobby company managers on environmental, social and governance issues. They could range from setting targets to reduce waste and carbon emissions to making sure they treat suppliers, customers and employees well. This could ultimately lead to better performance over the long term.
Take a look at the examples below. We share how two fund management companies get stuck in with the businesses they invest in, and show you how to learn more about investing with your principles in mind.
Neil Woodford is one of the UK’s best-known investors. He thinks successful investment needs a strong partnership between the owners and the managers of a business.
He’s a fund manager that’s not afraid to speak his mind. A recent example was energy, aviation and railway infrastructure business Stobart.
There was instability on the company’s Board, resulting in Andrew Tinkler, a senior executive who Woodford rated highly, being fired.
Woodford thought change was needed to make sure management continued to run the company to benefit shareholders. He suggested the company’s Chairman, Iain Ferguson, should resign and be replaced by Philip Day, owner of Edinburgh Woollen Mill Group. Day has lots of experience delivering excellent returns to shareholders.
Iain Ferguson has since agreed to step down within a year, but his successor hasn’t been announced yet.
EdenTree manages a range of funds with sustainability at the heart of their investment process. They see themselves as long-term business owners and think engagement is an important part of being a shareholder. They engage with hundreds of companies each year on a range of issues.
Health and wellbeing is a major theme across EdenTree’s funds so they’ve got big investments in pharmaceutical businesses. But the sector’s had some allegations of bribery and misconduct around sales and marketing practices.
EdenTree have engaged with a number of companies on this issue in recent months, including Smith & Nephew, AstraZeneca and Sanofi. They covered a broad range of subjects around conduct, culture and behaviour and, based on these conversations, are happy to keep investing in the businesses.
EdenTree also did a review of all companies held in its funds and measured their carbon footprint. They then engaged with the companies producing the most carbon emissions to encourage them to set reduction targets.
Like EdenTree, lots of ethical and sustainable funds engage with the companies they invest in on environmental, social and governance (ESG) issues. If you’d like to learn more about investing with ESG factors in mind, you can read our guide to investing responsibly. Wherever you choose to invest, remember that investments fall as well as rise in value, so you could get back less than you put in.
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