SRD II Statement

Introduction

The EU Directive (EU) 2017/828 (“SRD II”) was implemented in the UK on 10 June 2019. The objective of SRD II is to encourage long-term shareholder engagement with investee companies regarding performance on strategy, governance, environmental and social issues.

Firms operating within the scope of SRD II are obliged to develop and publicly disclose an engagement policy which complies with the requirements set out in the FCA’s Conduct of Business Sourcebook and publicly disclose on an annual basis how that engagement policy has been implemented in a way that meets the requirements (including disclosure of certain voting activities in respect of shares in investee companies) or to publish a clear and reasoned explanation of why they have chosen not to comply.

The engagement policy must describe how a firm:

• Integrates shareholder engagement in its investment strategies.
• Monitors investee companies on relevant matters (e.g. strategy, financial, non-financial performance and risk, capital structure, social and environmental impact and corporate governance).
• Conducts dialogues with investee companies.
• Exercises voting and any other shareholder rights.
• Cooperates with other shareholders.
• Communicates with relevant stakeholders of investee companies.
• Manages actual and potential conflicts of interests in relation to Argonaut’s engagement.

Per rule 2.2B.6 of the Financial Conduct Authority’s (“FCA”) Conduct of Business Sourcebook, Argonaut Capital Partners LLP (‘Argonaut’) sets out below its approach to meeting the requirements set out in SRD II.

Integration of shareholder engagement in its investment strategies

Argonaut’s investment process involves rigorous fundamental analysis of prospective and current investee companies. This often involves direct engagement with senior management of investee companies in order to understand their strategy and approach.

Monitoring investee companies on relevant matters (e.g. strategy, financial, non-financial performance and risk, capital structure, social and environmental impact and corporate governance)

Argonaut’s investment process involves direct meetings with the senior management of investee companies. During these meetings a broad range of issues will typically be discussed including, but not limited to, strategies for long term growth, capital allocation, financing plans and corporate governance. Social and environmental issues may also be discussed. Argonaut’s CIO Barry Norris has worked in European equity markets for over twenty-five years and thus has unique experience in the company monitoring process. His extensive body of knowledge and experience from having repeatedly met with European corporate management teams further informs the monitoring process.

There have been instances and may be instances in the future where Argonaut believe that a portfolio company can make improvements to its governance or to other aspects of its business. In such cases Argonaut will typically discuss their concerns directly with the management team of the investee company. If the management team fail to provide a satisfactory response or respond to the stated concerns, this may result in an adjustment to Argonaut’s investment thesis. If the issue is deemed significant, Argonaut would then decide whether to continue to hold shares in the company or divest their shares altogether. Such decisions are taken on a case-by-case basis and always made with the best interests of clients in mind.

Conducting dialogue with investee companies

Argonaut’s investment process involves frequent dialogue with the senior management of investee companies. During these meetings a broad range of issues will typically be discussed including, but not limited to, strategies for long term growth, capital allocation, financing plans and corporate governance. Social and environmental issues may also be discussed. 

Exercising of voting and any other shareholder rights

A resolution proposed by an investee company that is subject to a shareholder vote in which Argonaut is eligible to participate will always be considered by Argonaut. Argonaut’s policy is to exercise voting rights where it believes it is in the best interests of the underlying clients (‘Best interests’ rule’ in COBS 2.1) for such rights to be exercised, with the primary aim of enhancing the total return of the assets it manages for those clients.

The voting decision may involve abstaining or voting against management if management actions and objectives do not match up with what Argonaut believes to be in the best interests of shareholders. Argonaut may also abstain when the vote is deemed to be more administrative than strategic in terms of subject matter. It should be noted also that Argonaut may hold positions in portfolio companies in derivative form, in which case they may not be eligible to vote.

Argonaut’s voting record is available to its clients either directly from Argonaut or via its custodian. Argonaut does not publicly disclose voting records as it believes such information is confidential to its clients.

Cooperation with other shareholders

Argonaut does not generally engage in shareholder ‘activism’ though it is supportive of collective action and/or corporation with other investors if it can protect and/or enhance shareholder value. Thus, where legally permissible and if deemed to be in the best interests of clients and consistent with company strategy, Argonaut is willing to work collectively with other investors to protect and/or enhance shareholder value. Argonaut will determine on a case-by-case basis whether such collaboration is in the best interests of its clients.

Communication with relevant stakeholders of investee companies

Argonaut is prepared to communicate directly with other relevant stakeholders of portfolio companies if it is deemed to be in the best interests of Argonauts underlying clients.

Manages actual and potential conflicts of interests in relation to Argonaut’s engagement

Argonaut maintains a robust approach to managing conflicts of interest with a detailed policy, in accordance with existing FCA regulations, that is designed to identify, prevent or manage any and all such conflicts that may arise in the course of engagement activities.

Conflicts of interest can be either ‘potential’ or ‘actual’ and Argonaut will assess all conflicts and assess them accordingly. 

Argonaut’s conflict of interest policy is available on request.