The Shareholder Rights Directive II
Rye Bay Capital LLP (the ‘Firm’) complies with the requirements of the Shareholder Rights Directive (“SRD II”). It has developed an engagement policy and disclosed it publicly on the Firm’s website. The Firm will make annual disclosures on how the engagement policy has been implemented.
Where the Firm manages assets for occupational pension scheme or life assurance clients, investors referred to collectively as ‘SRD institutional investors’, it will provide additional client-by-client disclosures to its clients and, further, to other (non-client) investors as and when such requests are made.
Where the presence of such an investor cannot be readily ascertained by the Firm, it will provide the required information upon request.
Engagement Policy Disclosure
The Firm has developed a policy describing in detail the role of shareholder engagement in its investment strategy.
The Firm has publicly disclosed on its website its engagement policy which covers the following areas:
- The role of shareholder engagement in the Firm’s investment strategy
- The Firm’s procedure for monitoring investee companies on relevant matters, including: (a) strategy; (b) financial and non-financial performance and risk; (c) capital structure; and (d) social and environmental impact and corporate governance;
- Procedure for conducting dialogue with investee companies;
- Procedure for exercising voting rights and other rights attached to shares;
- Guidelines for working with other shareholders;
- Guidelines for communicating with relevant stakeholders of the investee companies; and
- Procedure for managing actual and potential conflicts of interests in relation to the Firm’s engagement.
Annual Update and Disclosure
This policy and the related disclosure are reviewed on at least an annual basis. As part of this review, the Firm will update its annual disclosure to include consideration of the following:
- A general description of voting behaviour;
- An explanation of how it has cast significant votes, including how it has cast votes in the general meetings of companies in which it holds shares; and
- Reporting on the use of the services of proxy advisors.
The Firm’s initial annual disclosure will be made with respect to the calendar year 2020, and will be made available in 2021.
Shareholder Engagement and Proxy Voting
The Firm monitors and records the way in which it has engaged with investee companies, including with regard to, and in accordance with, proxy voting policy and procedure as outlined in Appendix A.
The Firm maintains a record of votes exercised and periodically, and on at least an annual basis:
- Review the Firm’s voting record and confirm that a random sample of proxy questions were voted according to the approved policy; and
- Review any material conflicts that have been documented and determine independently whether the conflict was resolved in favour of the client’s interests.
The Firm is not required to disclose votes that are insignificant due to the subject matter of the vote or the size of the holding in the company. The Firm will consider the significance of each vote on an ongoing basis and in accordance with its proxy voting policy.
SRD Institutional Investors
Rye Bay Capital LLP complies with the disclosure requirements of SRD II with respect to such investors in funds to which it is the AIFM and separately managed accounts of SRD institutional investors, when applicable, by making such information publicly available on its website. Such disclosures will be provided and updated on at least an annual basis.
The Firm will also provide this information where requested to by other (non-client) SRD investors.
The annual disclosure for the period ending 31st December 2020 will be detailed in Annex 2, in due course.
Under obligations arising from the revised Shareholder Rights Directive (EU 2017/828) (“SRD II”), a firm which trades shares on regulated and comparable markets, is required to either develop and publicly disclose an engagement policy as prescribed in COBS 2.2B.6R or disclose a clear and reasoned explanation of why it has chosen not to do so.
Rye Bay Capital LLP (the ‘Firm’) has elected to disclose its engagement policy as set out below. Further, the Firm is also required to further disclose on an annual basis how the engagement policy has been implemented in a way that meets the requirements in COBS 2.2B.7R. The Firm’s initial annual disclosure will be made with respect to the calendar year 2020, and will be made available in 2021
The role of shareholder engagement in the Firm’s Investment Strategy/COBS 2.2B.6 R
The Firm seeks to identify opportunities through a fundamental, research-intensive and longer-term approach to investment selection. The Firm selects stocks based on detailed analysis, generally involving the construction of in-house financial models which seek to adopt a consistent approach to valuation. This analysis is complemented by company visits and by discussions with company management teams. Although the aim is to identify robust long-term investment opportunities, the investment team also closely monitors shorter-term developments to ensure the investment program is developing in a way that works with the Fund to achieve its objective.
Approach to ongoing monitoring of investee companies/ COBS 2.2B.6 R (2)
Ongoing monitoring of investee companies is the responsibility of the investment team at Rye Bay Capital LLP. Led by the CIO & supported by 3 analysts, the team conduct regular meetings with investee companies.
Access to & engagement with management is integral to the Firm’s fundamental approach to investing.
Approach to conducting dialogue with investee companies / COBS 2.2B.6 R (3)
The investment process is based on fundamental analysis of the companies whose equities we invest in. The Firm aims to invest only in businesses that we know in depth, within sectors and countries where we fully understand the underlying dynamics.
Ideas are generated from several sources, including (a) field trips where a number of companies in the same city/region or country are visited and assessed; (b) by monitoring market developments and considering companies within our existing knowledge base in the light of those development; (c) by attending conferences and company roadshows; (d) by selectively engaging with sell-side market participants. At the idea-generation stage, we would normally seek (a) to identify those aspects of the investment case that appear poorly understood by other market participants and (b) to establish whether or not the stock appears significantly over- or under-valued based on its cash-generation potential and the expected use of those cash flows.
After an idea has been identified, our process then moves on to a detailed assessment of the key drivers of the company’s business. This normally involves discussions with sell-side analysts including a detailed review of their financial models as we seek to identify the issues that may be missing from these analysts’ assessments of the stock. At this stage we normally construct our own financial model, which aims to capture concisely the most important factors driving future returns. It also includes our standard valuation model which we tailor to suit our assessment of the risks and growth prospects of the company under consideration
This process is supplemented by discussions with company management, initially usually by means of conference calls. However, as an idea moves closer to becoming an investment for the Fund we make every effort to visit company management in their own offices and to carry out a site visit at a typical company asset.
We also seek to discuss the company’s prospects with listed and unlisted competitors, as well as suppliers and customers, where appropriate. Emphasis is also be placed on obtaining timely publicly available data to enable us to monitor how the company’s business environment is evolving.
Using our valuation model, we generate a high-, mid- and low-case target price for the stock and this, together with our judgement on risks, informs the eventual investment decision.
During the research process the CIO, together with the analyst responsible for the position, continually reassess the investment thesis for the stock under consideration.
Our research process involves analysis, meetings with management and interaction with our counterparties. We maintain our own proprietary company and market models. We also maintain databases of key economic and financial statistics relevant to portfolio positions. In addition, we maintain research notes, based on meetings with corporates, industry contacts and sell-side analysts.
In meeting with management we discuss a broad range of issues including, but not limited to strategies for long term growth, performance & risk, financing plans including acquisitions & disposals and corporate governance.
The Firm does not normally wish to be made an insider and pre-communicates same to investee companies at the outset of any meeting. In the event the Firm becomes an insider trading in the company will be restricted and a record of the circumstances maintained by the Firm’s compliance department.
Procedure for exercising voting rights and other rights attached to shares / COBS 2.2B.6 R (4)
To the extent that a client has delegated to the Firm the authority to vote proxies relating to equities, the Firm expects to fulfil its fiduciary obligation to the client by monitoring events concerning the issuer of the security and then voting the proxies in a manner that is consistent with the best interests of that client.
The Firm has established effective strategies for determining when and how any voting rights held in client portfolios are to be exercised, to the exclusive benefit of the portfolio and its underlying investors concerned. The strategy includes measures and procedures for:
- Monitoring relevant corporate actions;
- Ensuring that the exercise of voting rights is in accordance with the investment objectives and policy of the relevant portfolio; and
- Preventing or managing any conflicts of interest arising from the exercise of voting rights.
A record of all voting instructions is maintained by the Firm.
Approach to cooperating with other shares holders / COBS 2.2B.6 R (5)
The Firm typically acts on its own behalf in regards to cooperating with other shareholders.
Approach to communicating with other non-equity stakeholders / COBS 2.2B.6 R (6)
The Firm does not typically communicate directly with other non-equity stakeholders. Any deviation from this approach would require compliance approval.
Procedure for managing actual and potential conflicts of interests in relation to the firm’s engagement / COBS 2.2B.6 R (7)
The Firm maintains a Conflicts of Interest Policy which is available to clients upon request.