Individuals who cannot master their emotions are ill-suited to profit from the investment process.
Ben Graham
UK Stewardship Code
The UK Stewardship Code was first published in July 2010 with the objective of enhancing the quality of engagement between investors and companies, to help improve long-term risk-adjusted returns to investors.
At Price Value Partners, we are fully supportive of the Code and passionately believe that effective stewardship benefits companies, investors and the economy as a whole. Corporate governance is a vital part of our investment process and responsibility for it sits with the fund management team. For us, corporate governance is about ensuring that the executive and board of a company are aligned with us as shareholders and that the course that they have set for the business will create long-term shareholder value – for the benefit of our investors.
The Stewardship Code sets out a number of areas of good practice to which professional investors (like Price Value Partners) should aspire. We fully comply with the principles of the Code.
Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
We are very active in our engagement with company management teams – this is crucial to our investment approach. We want to represent our investors’ best interests in our discussions with management teams. We like to see a clear alignment between a company and its shareholders in the pursuit of long-term shareholder value. If we fear that this alignment does not exist, or that an alternative strategy could result in more shareholder value, then we will engage with management to try to influence change.
We tend to favour voice over exit. We don’t run for the hills at the first sign of trouble. We are prepared to roll our sleeves up, discuss the situation with management and do what we can to help them solve the problems. It isn’t ‘their problem’, we see it as ‘our problem’. We believe successful investment requires a partnership between managers and owners.
Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
We believe strongly in transparency and openness. We have an effective and robust conflicts of Interest policy to protect the interests of our clients. The Conflicts of interest policy is designed to identify potential or actual conflicts between Price Value Partners, its clients, its investee companies and its employees, to document the conflict and any mitigating actions, set review dates and ensure reporting to clients where relevant, as well as appropriate escalation and reporting.
Price Value Partners Ltd is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales at 60 School Green Lane, Sheffield, Yorkshire S10 4GR.
Institutional investors should monitor their investee companies.
Monitoring of investee companies is of vital importance to our investment approach. It is a continuous process, with all portfolios reviewed daily to ensure appropriateness, consistency and adherence to mandate and applicable regulations. Individual holdings are assessed and monitored daily for newsflow, through conversations with the wider investment community and, where necessary, directly with the company.
We meet with the management teams of investee companies. The aim of these meetings is to learn more about the company but, as described above, we also seek to gain confidence that an alignment exists between a company and its shareholders.
Institutional investors should establish clear guidelines on when and how they will escalate their stewardship activities.
The aim of our investment process is to understand a business as comprehensively as possible. We are
‘outsiders’, however, and acknowledge that we will never know as much about a business as the ‘insiders’, namely the managers of that business. As a result, in the majority of instances, where we are convinced that an appropriate alignment exists between owners and managers, we will be supportive of the management team’s long-term strategy.
Our stewardship activities will be escalated if we are concerned about misalignment between owners and managers or where we believe an alternative strategy may result in the creation of greater long-term shareholder value. This escalation will normally involve some or all of the following steps:
Meetings
We prefer to undertake our corporate governance duties behind closed doors. However, if private discussions fail to deliver the outcomes we are seeking, then we are prepared to make our concerns public.
Institutional investors should be willing to act collectively with other investors where appropriate.
Price Value Partners is happy to engage with other investors, where appropriate, to achieve its objectives. This would normally take place if acting alone doesn’t seem to be achieving the desired outcomes and/or where we have become aware that other institutional investors have similar concerns to our own.
Institutional investors should have a clear policy on voting and disclosure of voting activity.
Price Value Partners considers the right to vote as one of its most effective tools for promoting good corporate governance and representing the collective interests of its clients. We aim to always use our right to vote on behalf of our investors, in every situation we can.
Our default position is to vote with management, but we reserve the right to vote against proposals where appropriate.
Institutional investors should report periodically on their stewardship and voting activities.
Price Value Partners believes it is appropriate to conduct its company engagement activities privately, but in certain circumstances, we will make public statements, particularly where we have unresolved concerns about a company management team or its strategy. Where this is the case, details will be available on our website.
We commit to providing transparency on our voting activities. In some instances, such disclosure may be withheld temporarily due to reasons of confidentiality or market sensitivity but, wherever possible, we commit to providing this information on request.
Pillar 3 Disclosure Statement
Capital Requirements Directive
Price Value Partners, Ltd. (PVP) is authorised and regulated by the Financial Conduct Authority (FCA). All employees are bound by rules of the FCA and all prevailing legislation.
The Capital Requirements Directive (CRD) introduced a new capital adequacy framework for banks and investment firms across Europe. The CRD is made up of three components called Pillar1, Pillar 2 and Pillar 3 which jointly form the prudential framework.
Pillar 1 is the minimum capital requirement set out by the CRD and instructed in the national discretions. The minimum capital requirement has three main components;
Pillar 2 is the capital adequacy assessment made by each individual firm. The adequacy of the firm’s minimum capital is no longer dictated by the regulatory minimum requirement and the firm must assess whether the capital it holds is adequate. This is achieved by the firm through the Internal Capital Adequacy Assessment Process (or ICAAP) which quantifies the risks of certain events on the firm’s profitability, and its ability to continue to operate. The additional provisions as a result of this assessment, if any, form part of the monthly Capital Adequacy Returns to the Regulator.
Pillar 3 sets out disclosure requirements regarding capital and risk management. The disclosure requirements aim to compliment the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2) and aim to encourage market discipline by allowing market participants to assess key pieces of information on risk exposures and the risk assessment process of the firm.
The Capital Requirements Directive (CRD) provides that the firm may omit one or more of the required disclosures if it believes that the information is immaterial. PVP defines material risk as any risk large enough to threaten the success of the enterprise in a material way. The CRD also permits the firm to omit one or more of the required disclosures where it believes that the information is regarded as proprietary or confidential. Proprietary and confidential information includes non-public information that is confidential and/or proprietary belonging to the Company and/or parties with whom the Company does business or if the disclosure of such information may undermine our competitive advantage. This document relates to Pillar 3 disclosures only.
These disclosures are based on the financial statement prepared to 30th June 2016. The next report is to be issued in conjunction with the 30th June 2017 financial statements.
This disclosure is published on the company website, www.pricevaluepartners.com/XXXXX
It is not considered appropriate to make disclosure of certain quantitative data which is regarded as proprietary and confidential.
The Board has overall responsibility for the firms system of internal controls, the objectives of which are the safeguarding of the firm’s assets and clients’ assets, the maintenance of proper accounting records and the availability of reliable financial information for use within the business and for publication.
The risk management framework is part of the well-defined governance framework which meets best practice in a manner appropriate to the firms scale and scope of operations. The framework demonstrates control of the business, whilst facilitating transparency for all stakeholders and supporting the business to move rapidly in a changing market.
PVP has a dedicated Compliance & Risk Control Function, which has direct access to the Board of Directors.
PVP’s risk management policies and main risk mitigations and controls have been documented in the firms ICAAP and in the Compliance Procedures Manual. Compliance with these policies set out in the Manual is monitored by the Compliance Officer. The firms systems of internal control include appropriate levels of authorisation and segregation of duties.
For the purposes of Pillar 3 disclosures, the material areas of risk identified are;
Market Risk
Market risk is the current or prospective risk to earnings and capital arising from adverse movements in proprietary investments and assets under management. PVP has potential exposure to market risk from several sources. PVP is not involved as a market-maker.
PVP faces exposures in the following areas;
A provision for Market risk is made in our Capital Adequacy using the ‘Basic Method’ of calculations. The provision is not disclosed in this document.
Operational risk
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This risk includes IT, legal and compliance risk. PVP meets the requirements to use the Basic Indicator Approach in its calculation of operational risk. The capital requirement for operational risk under this approach is 15% of the average over three years of the sum of gross turnover, adjusted for items set out in Table 1, annex X, Part 1 of the 2006/48 Directive. The provision is not disclosed in this document.
The Firm has many controls in place to mitigate Operational risks. The Compliance function has procedures and controls in place to ensure compliance with applicable laws and regulations. This is in addition to procedures and controls that are in place in each business area and insurance cover. The Compliance function is continually reviewing all perceived Operational risks to the business.
Credit Risk
Credit risk is defined as the current or prospective risk to earnings and capital arising from counterparty’s failure to meet the terms of any contract or its failure to perform as agreed. PVP may incur credit risk as a result of trading activities as it is potentially exposed to the failure of a counterparty or client from the time of a transaction to the final settlement of the deal. In relation to the Firm’s investment management business, the firm does not consider that there is a risk of client default that would be material in the context of the overall business. Moreover credit exposures to clients are monitored by the Compliance & Risk Control Function and there are effective processes in place to recover any monies due to the firm.
Institutional trades are conducted on the basis of “delivery versus payment” (DVP) which minimises the risk of exposure to more substantial trading positions. This does not however eliminate risk entirely in the combination of circumstances in which the counterparty fails and the value of stock awaiting settlement against payments has changed adversely. So this risk becomes essentially market risk if the counterparty defaults.
Capital Resources
Capital management is a critical area for PVP and the capital held is sufficient to meet the foreseeable needs in the next financial year. As a company authorised and regulated by the FCA, PVP is required under the relevant regulations to maintain sufficient capital. PVP has in excess of 2.5 times the regulatory capital required under the Pillar 1 calculation. The firm’s conclusion is that the capital currently held is adequate for the current operation.