Explain what shareholder engagement can achieve and the part an equity manager may take in it
The idea
Engagement is ongoing dialogue between investors and company boards or management on strategy, capital allocation, governance and ESG issues. Potential gains include better governance, fewer agency conflicts, improved long-term value and information that helps the manager assess the company. A manager can engage by voting proxies thoughtfully rather than automatically, meeting directors, collaborating with other shareholders and, at the far end, running activist campaigns. Engagement has costs: staff time, the risk of receiving material non-public information that restricts trading, and possible conflicts when the company is also a client. It also suffers from free riding, since all holders benefit while the engaging manager pays. Passive managers, unable to sell, often rely on engagement as their main lever.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
Take the free diagnostic →More in Overview of Equity Portfolio Management
- Explain what equities contribute to a client's total portfolio
- Set out the ways an equity manager can divide up the universe of investable shares
- Identify the sources of income and the costs that arise when holding and running an equity portfolio, and explain how each affects performance
- Explain why an investor might choose each approach along the range from passive to highly active equity management
- Weigh the factors that matter when selecting a benchmark for an equity mandate