Liontrust Responsible Capitalism Report 2021 - Flipbook - Page 29
Managing conflicts of interest
The Group manages these through a conflicts register which is
maintained by Liontrust’s Compliance team. The register contains
details on the:
• Nature of the conflict of interests
• Those employees, roles, or external individuals involved or
potentially impacted by in the conflict of interest
• Date(s) of the existence of the conflict of interest
• Ownership or oversight of the specific conflict
• Details on how the conflict is managed and audited
Identifying potential conflicts of interest
All staff must notify Compliance of a potential conflict of interest
within the business.
Fund managers are responsible for disclosing any potential conflicts of
interest relating to a holding, including that which relates to proxy voting.
Escalating a conflict of interest for the purpose of finding a resolution
Liontrust’s Compliance team works with other Group departments to
ensure conflicts of interest are logged properly on the register. This is
for the purpose of ensuring that any events determined to be conflicts
of interest are managed effectively and recorded in the course of
day-to-day business, and that an escalation process exists and is
used for the purposes of managing conflicts. The escalation process
for resolving conflicts of interest is:
• A Liontrust employee (which may be a fund manager) alerts
Liontrust’s Compliance team to a potential conflict of interest.
The Compliance team lists the conflict on the Group’s Conflict of
Interest register.
• Any employee who feels that they need to do so can escalate the
conflict of interest to the Head of Compliance.
• The Head of Compliance can, in turn, raise this issue to the
Executive Directors or to the Board, depending on the nature of
the conflict of interest
Examples of potential conflicts of interest in 2022
1. Liontrust shares held in Liontrust funds
In the event that Liontrust managed fund(s) own Liontrust shares, the
manager of the fund(s) could be in conflict on how to vote proxies.
This could potentially undermine the fund manager’s ability to
manage the asset in line with clients’ best interests. This can happen
in the case of proxy voting where a manager may be conflicted with
supporting the Group (Liontrust) vs supporting what is best for the
underlying investors (clients of Liontrust).
How this issue could be managed:
To manage this conflict, Liontrust has a Group-wide proxy voting
policy which includes a stipulation that Liontrust managed funds do
not hold Liontrust stock for the avoidance of conflict of interest in
voting on remuneration or other governance issues. An exception to
this rule is made when Liontrust acquires another business and takes
on funds which may hold Liontrust stock. In these instances, the fund
manager is given six months to sell out of Liontrust holdings and is
expected, during that time period, to vote in line with the stated
investment process for the fund.
2. Fund managers personally owning shares in companies they
also hold in their funds
In an event where Liontrust fund managers invest in the shares of a
company in which they also have personal investment, the risk is that
the fund manager could be inclined to engage with or vote the stock
according to how he/she thinks would be in their own best interest,
rather than in the best interest of Liontrust’s investors.
To help minimise this risk, Liontrust requires fund managers (and other
employees) to declare (and keep up to date) their personal holdings
so that the business understands what fund managers hold personally.
All Liontrust employees are required to seek permission to trade in an
asset in advance of doing so and to abide by the Group’s rules in
this area including a minimum holding period.
3. Instances where a client is also a company in whose stock
Liontrust fund(s) invest
This situation could arise if where Liontrust holds the stocks of a large,
UK-based Group which is also a client for whom Liontrust manages
money. In these instances, there is essentially a Chinese wall between
the owning of the stock (and engaging the Group and/or voting
shares as part of this ownership) and managing the client relationship
with the company. While fund managers may be involved in both
sides of the equation, the buying/selling/weighting of the stock
in the portfolio is kept entirely separate from the management of
the client relationship. Fund position(s) in this Group are added to,
retained, reduced or exited as per the best interests of investors in
the Fund.
4. A Board member is a non-executive at a company whose
shares are held in Liontrust funds
There are currently two examples of this situation at Liontrust.
• The Chair of the Board of Liontrust is also a Non-Executive
Director (NED) on the Board of a holding in Liontrust fund(s).
• One of Liontrust’s NEDs is a member of the Board of another
listed company which is held by Liontrust fund(s).
In both instances, the NEDs’ interests are listed in Liontrust’s
compliance register and both NEDs are aware of Liontrust’s
Conflicts of Interest policy.
5. Companies whose shares are held in Liontrust funds are also
companies that provide services to Liontrust.
Several of the companies held in Liontrust funds provide services to
Liontrust. In these situations, there is a Chinese wall between choosing
a service provider (managed by Liontrust’s risk or operations team)
and the decision to hold a stock in Liontrust’s funds (a decision made
by the relevant investment team).
Reducing the Group’s exposure to conflicts of interest
Liontrust employees undertake annual training on how to manage
conflicts of interest so that the Group continues to act in the best interest
of investors in every situation. The training is updated periodically;
if a material change in the policy occurs, staff must attest that they
understand and will fulfil the requirements of the updated policy.
Responsible Capitalism Report 2022 - 29