New investor body doomed without sovereign fund support

LONDON (Reuters) - Some of Britain's largest investors say plans for a new investor body to improve relationships between shareholders and UK companies are doomed unless "notoriously low-profile" sovereign wealth funds (SWF) including Norway and Qatar take part.

Economist John Kay is leading calls for the creation of a new institutional investors' forum to kill off a 'get rich quick' investment culture and help shareholders engage with companies more effectively.

Tensions between big companies and their shareholders have intensified in recent months, as investors voted down pay proposals in big companies including WPP (WPP.L), Aviva (AV.L), Cairn Energy (CNE.L) and Pendragon (PDG.L).

The backlash, dubbed the "shareholder spring", has cost the jobs of executives such as Aviva (AV.L) boss Andrew Moss, and Sly Bailey, head of newspaper group Trinity Mirror (TNI.L).

Kay wants the new independent body to encourage non-UK investors such as SWFs to engage in collective action with other large investors to boost their influence over company strategy.

But participants are sceptical that these secretive funds will lend their support to such proposals, rendering the initiative next to useless in a sector already teeming with lobby groups and committees.

"I am unconvinced any new forum will see government agencies and SWFs joining together," said Robert Talbut, chief investment officer of Royal London Asset Management and chairman of the Association of British Insurers' (ABI) Investment Committee, whose members account for about a fifth of the UK stock market

SWFs have emerged as one of the biggest investors in the UK, pumping in some $68 billion or 17 percent of overall investments over 2005-2011. Overall, SWFs hold around $5 trillion in assets.

SWFs - which generally shun the limelight - hit the headlines during the financial crisis, most notably when British bank Barclays (BARC.L) raised 7 billion pounds from Qatar and Abu Dhabi investors to avoid a government bailout.

"These organisations are notoriously low-profile and I am not sure they would be particularly prepared to be involved in another forum," added Talbut.

MORE POWER

"The key is how do we get all sovereign wealth fund investors such as the Qataris or the Norwegian fund to engage to give us more power," said Sacha Sadan, director of corporate governance at Legal & General Investment Management, which holds around 4 percent of the UK stock market.

"The UK has many investor forums such as the ABI, the National Association of Pension Funds and the Investment Management Association which do a good job, but are mainly traditional with the NAPF representing pension funds, the ABI insurance and IMA investment firms. We need to engage with our new investor base who are just as important," he added.

In last month's report, Kay said the new body would allow for shareholder discussions on company strategy and corporate governance, as well as specific issues at particular companies.

The Stewardship Code introduced in the UK in 2010 demands shareholders scrutinise company boards on strategy and policy, but the new investor body mooted by Kay will allow all large UK investors a platform to collaborate, giving momentum to shareholders' engagement, Sadan said.

Talbut noted that while some SWFs held conversations with other large shareholders on an "ad-hoc" basis, there were no signs of them doing so on a more routine basis.

"We don't get the impression that they want to materially change their policy at the moment," he said.

The Norwegian Government Pension Fund declined to comment, while the Qatar Investment Authority was not immediately available for comment.

Corporate governance adviser Pensions and Investment Research Consultants (Pirc) said the international ownership of UK companies meant it was important to convince foreign investors to work with their UK counterparts.

"If we don't make cross-border collaboration work, there is a theoretical danger that overseas investors will influence the governance of UK plcs in a way that is not in line with domestic best practice," a Pirc spokesman added.

Pirc advises pension funds and fund managers with combined assets of over 1.5 trillion pounds.

(Editing by Sinead Cruise and Helen Massy-Beresford)