Background

SKAGEN AS (SKAGEN) is an investment firm authorised to provide portfolio management pursuant to the Norwegian Securities Trading Act. SKAGEN is 100% owned by the management company Storebrand Asset Management AS (SAM). SKAGEN manages the SKAGEN funds (equity funds and combination funds) pursuant to an outsourcing agreement with SAM. 

Through their investments, the funds become owners or creditors of various companies, and the funds can thus exert influence on the companies' operations.

This policy describes how SKAGEN shall exercise corporate governance on behalf of the funds. The guidelines have been drawn up in accordance with the Norwegian Fund and Asset Management Association's industry recommendation on the exercise of ownership rights, the European Fund and Asset Management Association (EFAMA) Code for external governance and in line with the UN-supported Principles for Responsible Investment (UN PRI).

Overall goal

SKAGEN's overall objective in exercising corporate governance is to help unitholders in funds managed by SKAGEN achieve the best possible risk-adjusted return.

The objective of corporate governance

The way a company is managed has an impact on the company's valuation, both because corporate governance affects the extent to which the company is able to achieve its objectives and because poor corporate governance can undermine trust in the company. Assessment of how a company is managed is part of the portfolio managers' investment process, both before the investment is made and continuously during the ownership period.

It may be appropriate to exercise corporate governance in several areas, including:

1. Company strategy and results
2. Traditional corporate governance, such as composition of the board, elections, remuneration, dividend policy
3. Company Corporate Social Responsibility and ESG Issues
4. Company risk management

When investing in fixed income securities, the funds become a creditor in the company. The creditors may have certain rights related to their position, such as the right to repayment of the loan, the right to mortgage security, the right to file for bankruptcy, and the right to oppose certain corporate actions. The rights may follow from the loan agreement or from regulations.

The objective in exercising creditor rights is to help unit holders in funds managed by SKAGEN to achieve the best possible risk-adjusted return. Creditor rights shall be exercised for the benefit of the individual fund and in accordance with the interests of unitholders.

SKAGEN's overriding duty is to safeguard the interests of unitholders, and the funds may therefore choose to sell a position rather than try to influence the situation through corporate governance.

Definitions

Corporate governance

Corporate governance is largely about the mechanisms in the triangle between the owners, the board of directors and management of a company.

Voting rights

Voting rights refer to the ability to vote at general meetings of a company. In private limited companies, shareholders generally have one vote per share at general meetings, which make important decisions on behalf of the company.

UN PRI

The UN supported Principles for Responsible Investment (UN PRI) is a network of international investors working together to implement six principles for responsible investment. Signatories to UN PRI commit to incorporating the principles into the investment process in addressing companies' environmental, social and corporate governance (ESG) issues.

Exercise of corporate governance

SKAGEN can exercise corporate governance in various ways, from informal dialogue with the board of directors or company management to voting at general meetings. How corporate governance is exercised in a specific case will depend on the size of the investment, the nature and importance of the case. In addition, an assessment is made of how resources should best be used to give the unit owner the best possible risk-adjusted return. When exercising ownership rights in Norway, SKAGEN follows the Norwegian Code of Practice for Corporate Governance.

1.1. Follow-up of the portfolio companies

The portfolio managers assess the funds' investments on an ongoing basis. As part of this, the companies' corporate governance is monitored, both in terms of results and whether corporate governance is effectively organised. In addition, SKAGEN uses electronic tools to monitor companies' activities in relation to environmental, social and corporate governance.

1.2. Dialogue with portfolio companies

Ongoing dialogue with portfolio companies shall contribute to ensuring the best possible development in the funds' investments, and thus the best possible risk-adjusted return for unit holders.

SKAGEN will consider dialogue with the companies in the following cases:

1. The company's strategy or results differ from what has previously been communicated
2. Proposals are made for replacement of board members, share issues, dividend policy or remuneration of key persons
3. There are aspects of the company's operations that are not in line with SKAGEN's ethical guidelines
4. There are aspects of the company's corporate governance that conflict with the fund's objective of the best risk-adjusted return

A dialogue with companies may take place by expressing SKAGEN's views, in writing or verbally, to the company's management, advisers, board of directors or similar.

If the dialogue does not meet SKAGEN's expectations, SKAGEN may consider implementing other corporate governance measures, such as:

1. Expressing their position publicly
2. Proposing resolutions to the general meeting
3. Proposing extraordinary general meeting

1.3. Cooperation with other investors

SKAGEN may exercise its corporate governance in cooperation with other investors where this is believed to be in the interests of unit holders. When collaborating with other investors to influence portfolio companies, SKAGEN shall be particularly aware of the risk of conflicts of interest and of being placed in an insider position. The consideration of the individual fund for which corporate governance is exercised in favour shall govern any cooperation.

Use of voting rights

2.1. Objectives

Through their investments, funds managed by SKAGEN will normally have voting rights in the portfolio companies. The voting rights have been outsourced by the management company to SKAGEN, acting on behalf of the funds. In SKAGEN, the exercise of voting rights is delegated by the Board to the administration. The objective in exercising the right to vote is to give the unitholder the best possible risk-adjusted return.

The framework for the use of voting rights is set out in Section 2-24 of the Securities Fund Regulations and the industry recommendation from the Norwegian Fund and Asset Management Association.

2.2. When and how the right to vote is to be exercised

Voting rights shall be exercised in favour of the fund in question for the purpose of providing unitholders with the best possible risk-adjusted return. The portfolio manager considers when and how voting rights should be exercised. The portfolio manager familiarises himself or herself with the matters to be considered at the general meeting and decides how the vote is to be taken. The right to vote is exercised either directly by SKAGEN or by SKAGEN authorising third parties, often custodians, to exercise their voting rights on behalf of the Fund.

SKAGEN does not manage any funds with specific mandates that may influence voting, such as environmental funds, activist funds or ethical funds. Every time SKAGEN decides whether to vote for or against a proposal, or abstain from voting, it must consider whether the proposal will increase the long-term potential return on the shares issued by the company. This must be weighed against the resources spent on voting that could otherwise be spent on other portfolio activities in the interests of unitholders.

To ensure that SKAGEN exercises its voting rights in accordance with the fund's investment objectives and the guidelines, the board of directors of Storebrand Asset Management shall be informed of the exercise of its voting rights. To the extent that voting has been exercised in connection with controversial matters or cases where SKAGEN has voted against the recommendation submitted, a separate report shall be provided to the Board at the next board meeting and the Fund's unitholders shall be informed via the SKAGEN Funds' website. Unit owners can receive information free of charge on request about how the right to vote has been exercised. The Board of Directors considers annually whether to renew the authorisation of the administration to exercise voting rights on behalf of the mutual funds.

2.3. Follow-up of relevant corporate events

SKAGEN monitors relevant corporate events in its day-to-day management and operation of the funds.

SKAGEN has access to an electronic voting service, which also notifies of notices of general meetings and offers comprehensive information about companies.

Each mutual fund shall have a custodian. The custodian is a credit institution authorised by the Financial Supervisory Authority of Norway to act as custodian. The custodian shall, among other things, hold the assets of the fund or keep them in accounts in a securities depository. The custodian also provides information on and manages corporate events such as dividends, warrants, share issues, demergers, mergers and general meetings.

2.4. Lending and revocation of shares

SKAGEN will normally revoke any loaned shares when it is relevant that the funds will vote for their full shareholding at the general meeting.

2.5. Conflicts of interest in the exercise of voting rights

Each of the SKAGEN funds has its own mandate and is managed independently of the others. Portfolio managers may nevertheless choose to invest in the same share so that several funds can have ownership and voting rights in the same company. Each mutual fund is free to vote according to its own conviction as to what will best serve the unitholders of that fund. Therefore, there shall be no conflict of interest between the funds as shareholders when exercising their voting rights. Where funds managed by SKAGEN are respectively the owner and creditor of the same company, the portfolio manager for the individual fund is responsible for taking a position on the matter from the fund's perspective and exercising voting rights in accordance with the individual fund's interest.

SKAGEN's portfolio managers are subject to strict rules for investing in financial instruments on their own account. After prior approval, they may still invest in companies included in the funds' portfolios. In cases where the portfolio manager has invested on his/her own account in companies where he/she is to exercise voting rights on behalf of the funds' unitholders, he/she shall contact the CEO to clarify whether he/she can also exercise voting rights on behalf of the funds. The Board of Directors has authorised the CEO to decide matters where there are conflicting interests. If the CEO has conflicting interests with the funds, the matter shall be decided by the board.

SKAGEN's employees shall have board positions in companies listed on a stock exchange or regulated market. As part of its active ownership approach on behalf of the funds, SKAGEN may be represented in the corporate assembly and nomination committee. The decision to apply for such representation shall be based on a concrete assessment that this is in the interests of unitholders (defined as the best possible risk-adjusted return) when time spent is also taken into account. SKAGEN may be represented by employees or other persons nominated by SKAGEN.

2.6. Inside information

In order to assess any challenges the portfolio companies face in their corporate governance, SKAGEN is dependent on gaining access to information about the company. At the same time, it is important to retain freedom of action with regard to the funds' investments so that it is possible to act in the best interests of unitholders. SKAGEN shall be conscious of the information received in relation to the rules on inside information, also in relation to the exercise of corporate governance.

It is expected that the companies and their advisers also have a conscious attitude to these regulations and not put SKAGEN in an insider position without consent. In case of doubt, it shall as far as possible be clarified with the publisher whether relevant information is inside information before it is received.