Guidelines for investment fund managers as shareholders

The following Guidelines for fund managers as shareholders shall be observed by the member companies of the Association. Fund managers’ mandate to manage an investment fund includes representing its unit holders on shareholder matters with the aim of safeguarding the common interests of the unit holders, i.e. the best possible return.

Corporate governance refers to the division of roles and responsibility between a company’s owners, its Board of Directors and its corporate management. The exercise of ownership primarily relates to the relationship between a company’s owners and its Board of Directors, and can be defined as the shareholders’ means of exercising influence and control. The guidelines for fund managers as shareholders are limited to the role and responsibility of the fund management company as owner representatives acting on behalf of the unit holders.

Background

The guidelines were adopted by the Board of Directors of the Swedish Investment Fund Association on 13 February, 2002 and have subsequently been revised on 4 June, 2004, 6 December, 2004, and 6 February, 2007. 

A number of significant changes have taken place since 2002 with regard to corporate governance and which have occasioned the updating of the Association’s guidelines for fund managers as shareholders.

A new Swedish Investment Funds Act came into force in 2004.

The Swedish Investment Fund Association was one of the initiators of the Swedish Code of Corporate Governance (the Corporate Code), implementation of which began on 1 July, 2005, and is one of the principals of the Association for Generally Accepted Principles in the Securities Market, one of whose specialist bodies is the Swedish Corporate Governance Board, which is tasked with managing the Code.

The Swedish Investment Fund Association has also adopted a Swedish Code of Conduct for Fund Management Companies (the Fund Management Company Code), which came into force in 2005. The code includes general rules governing the control of fund management operations, good ethics, fund managers as shareholders, handling conflicts of interest, etc. These guidelines are intended to provide additional guidance for fund management companies with regard to fund managers as shareholders.

The Association is also a member of the European fund management industry’s coordinating body, EFAMA, which has adopted both an overall “Code of Conduct for the European Investment Management Industry”, and a recommendation entitled “Investment Fund Managers as Shareholders”.

Fund managers as shareholders

The objective of the fund manager when acting as a shareholder is to safeguard its unit holders’ common interests in shareholder matters in order to obtain a higher return for the unit holders and contribute to the healthy long-term growth of the venture capital market.

One essential way in which fund managers differ from other owner categories is that the capital in open investment funds can be contributed and withdrawn at any time and the fund manager must always be prepared to buy or sell shares. A fund manager is also prohibited from acquiring shares that would give the fund management company a significant influence over the management of a company.

In formulating corporate governance policies and action plans to address ownership issues, consideration must also be given to the fact that the conditions applicable to different fund managers vary, depending on factors such as the size of the managed fund assets. However, it is the perception of the Association that even smaller fund managers can play an important shareholder role, e.g. as owners in small companies, or in cooperation with other owners.

Fund managers can exercise voting rights for the fund but can also, as in exercising ownership, opt to sell shares (exit) in a company, which may be a strong indicator that a change has been deemed necessary.

Common interest of the unit holders

By law, fund managers must represent the unit holders of the investment fund in all matters pertaining to the fund, i.e. including shareholder matters, and must, in conjunction with their mandate to manage an investment fund, act exclusively in the common interests of their unit holders. This means that the fund manager shall, also in shareholder matters, act with a view to obtaining the best possible return for the unit holders of the fund, taking into account the fund’s investment orientation, risk policy and, where applicable, any special criteria to which the fund is subject.

Acting exclusively in the unit holders’ common interests means that other interests, such as those of the fund management company or affiliated companies, must always yield in the event of any conflict of interest.

The safeguarding of the unit holders’ common interests can be ensured in a number of different ways. See below for examples:

  • Transparency and high quality information enable interested parties to be informed of the reasoning behind positions taken on matters in which the independence of the fund manager could be questioned.
  • The Board of Directors of the fund management company should include independent members. According to the Fund Management Company Code, at least half of the members of a fund management company’s Board of Directors should be independent of the management company and its associated companies*.
  • Fund management companies should identify conflicts of interest and put in place internal rules governing the handling of and provision of information regarding such conflicts in accordance with the Fund Management Company Code. It is particularly important that conflicts of interest in relation to associated companies are identified.
  • The auditing and the supervision function of the Swedish Financial Supervisory Authority, together with the fund management company’s internal checks and the role of depositories, contribute to ensuring that the fund manager in conjunction with the management of a fund acts exclusively on the basis of the common interests of its unit holders. 

Fund managers as shareholders

The Association recommends that each member company, based on its own particular conditions, exercises ownership of the fund in the common interest of the unit holders. 

The Association recommends that the fund manager, in cases where such action is justified with regard to the unit holders’ interests, exercises its voting rights at general shareholders’ meetings of companies in which the fund is a shareholder.

The Association recommends that the fund manager strives to ensure that the principles governing the work of nominating committees are reported openly and that this work is conducted efficiently.

The Association recommends that the fund manager strives to ensure that companies in which the investment funds invests have a Board of Directors with a balanced composition with regard to competence and otherwise comply with the requirements laid down in the Corporate Code.

The Association recommends that the fund manager always strives to ensure that companies in which the fund invests act in accordance with relevant codes and guidelines and otherwise in accordance with good practices in the stock market.

Corporate governance policy and information

The unit holders have a right to be informed of the principles governing the actions of the fund manager in its capacity as a representative of the fund on shareholder issues. The fund manager should provide details of the same in a corporate governance policy. 

The Association recommends that each fund manager adopt and make public a policy on corporate governance. The corporate governance policy can, for example, be included in fund prospectuses and annual reports and be posted on websites.  

Each fund manager formulates the content of its own corporate governance policy based on its own particular conditions. The corporate governance policy must, however, always set forth

  • the fund manager’s principles for exercising its voting rights at general shareholders’ meetings,
  • the fund manager’s principles for its own participation in the work of nomination committees, and
  • other principles applied by the fund manager which are of significance in terms of corporate governance.

The Association recommends that positions taken with respect to significant individual shareholder issues and the justification for these positions be provided after the fact to the unit holders.

The Association recommends that the fund manager has a named contact person to deal with corporate governance issues.

 

* * The Code contains the following definition of “independence”. “A member is deemed to be dependent if he or she is employed by the company or an associated company, has been employed by either of the above during the last three years, is closely associated with a person in the management of the said companies, receives a not insignificant remuneration, over and above Director’s fees, from the fund management company, or has extensive commercial links with or represents a party that has extensive commercial links with the fund management company or its associated companies. The mere fact that a Board Member has a seat on the Board of more than one fund management company within a corporate group does not mean that the member is disqualified from classification as independent.”

As regards independence in relation to major shareholders, the Code contains the following requirement: “At least one of the Board Members who shall be independent in the manner prescribed above shall also be independent in relation to the company’s major shareholders. A Board Member who represents a major owner or is an employee or a Board Member of a company that is a major owner shall be regarded as dependent. The term, major shareholder, refers to owners who, either directly or indirectly[1], control ten per cent or more of the shares or votes in the company. [1] If a company owns more than 50 per cent of the capital or votes in another company, the former company is deemed to control the latter company’s holding in other companies indirectly.”

Print Share this page