Langham Hall Management S.à r.l (“LHM”) was formed as an AIFM under the Law of 12 July 2013 on alternative investment fund managers, as amended (“2013 Law”) to provide management service in the capacity as the Alternative Investment Fund Manager for funds which have as the main strategy, investment into an illiquid asset class, including:
- real estate;
- private equity;
- private debt/credit; and
LHM does not usually act as the initiator for a fund. The initiator for the funds that LHM manages usually act in the capacity of delegated portfolio manager or investment adviser to the relevant fund.
For the illiquid asset classes that LHM deals with, it is expected that there would be few incidences where there would be voting rights attached to the fund’s assets beyond the ordinary corporate governance requirements (shareholder approval to audited accounts etc). Examples of this would usually arise in relation to:
- minority holdings in portfolio companies;
- underlying co-investment positions;
- peripheral strategy of voting into liquid assets; and
- exit of investment through an IPO resulting in the holding of liquid assets under retention as part of the exit arrangements.
In accordance with Commission Delegated Regulation (EU) 231/2013 of 19th December 2013 with regards to the management of AIFs (Art.37) and Section 5.5.10 on the exercise of voting rights in CSSF Circular 18/698, LHM must develop an adequate and effective strategy for determining when and how voting rights attached to instruments held in the managed portfolios are to be exercised, to the exclusive benefit of the funds concerned and its investors.
Point 394 in the circular also confirms that it is acceptable for an LHM to refer to the strategies developed in this regard by its group or to the recognised international standards when developing its own strategy for exercising voting rights. Furthermore, LHM can also delegate the exercise of such voting rights where appropriate, provided that LHM has conducted an initial due diligence and ongoing monitoring.
This policy sets out the arrangements in relation to two circumstances:
- where LHM acts as the portfolio manager (usually with the benefit of an investment adviser in place); and
- where LHM has delegated portfolio management to a third party.
A copy of this policy shall be posted on Langham Hall’s website. This policy shall be reviewed on a regular basis and at least annually.
2. Purpose of this Policy
The purpose of this policy is to set out procedures to:
- Determine where there are voting rights to be exercised in relation to the assets of the fund under management;
- Who may exercise the discretion to determine how to vote;
- The procedures and policies to be followed in relation to the exercise of such rights;
- The general discharge of fiduciary duties by LHM in relation to the voting rights taken by the Fund.
3. Application of this Policy
As described above, because of the strategies of the funds that LHM managers, it is expected that this voting policy will not be applicable in practice to the majority of fund assets.
Where the documents governing the operations of the fund and/or the relationship between the fund and LHM is silent as to who retains the voting rights (if any) in relation to the fund’s assets, the fund (through its general partner if a partnership structure) should only exercise the votes after receiving direction as to how to exercise such vote from:
- LHM where LHM is the portfolio manager and has not delegated this function; or
- The delegated portfolio manager if LHM has delegated such function.
4. Monitoring Relevant Corporate Actions
On onboarding a new fund, LHM agrees a service level agreement (“SLA”) involving inter alia the delegated portfolio manager or investment adviser (as relevant for the particular fund) and the general partner. This would cover key events and include a section dealing with Corporate Actions.
For the strategies that we work with and because they are not expected to be custodial assets, it is expected that the Fund will receive notice of any such corporate actions where voting may be required. The SLA would require the Fund to give such notice to the AIFM and the delegated portfolio manager or investment adviser (as applicable).
In the event if for any reason the notice for such corporate action is provided to the delegated portfolio manager, the SLA would also require the delegated portfolio manager or investment adviser to give such notice to the Fund and the AIFM.
5. Exercising of Voting Rights
Where LHM has not delegated the portfolio management, the following principles will be considered in determining the exercise of any voting rights attached to assets of the funds under management:
- Focus on long term sustainable value creation;
- Protecting shareholders’ rights;
- Supporting decisions which would enshrine independent, effective and accountable management;
- Aligning incentive structures with the interest of the fund investors;
- Respecting society and environment;
- Encouraging diversity, equality and inclusion in the portfolio companies’ operations;
- Transparent and timely reporting
ensuring at all times that the exercise of voting rights is not in contravention of the investment objectives and restrictions of the relevant fund.
LHM will also consult and take advice from the relevant investment adviser for the fund that will have specific expertise in the strategy, jurisdiction or asset class under discussion, and/or in extremis, where considered necessary and agreed with the Fund that it will make a material measurable financial difference to returns for the fund, LHM may also consult external professional advisers at the cost of the Fund.
LHM does not have a policy of ensuring that each vote has to be exercised and may not exercise such rights if the exercise of the vote will have little impact on the fund’s portfolio. There may also be other valid factors for abstaining from the exercise of the vote.
Where appropriate and if in the best interest of investors, LHM may cooperate with other shareholders in respect of returning the vote, and only when such cooperation does not result in violation of any applicable laws or LHM’s internal policies. For this purpose, LHM may still exercise a vote even when it relates to a very small percentage of the fund’s portfolio if in concert with the votes of other shareholders, it further the principles for voting as set out above.
Where LHM has delegated the portfolio management, as part of the due diligence of the delegated portfolio manager prior to appointment, LHM will check ensure that the portfolio manager has an acceptable policy and internal procedures in respect of the exercise of any voting rights, and that such policy is not in contravention of the investment objectives and restrictions of the relevant fund. The due diligence would be refreshed from time to time and where there has been changes. LHM will have oversight of the discharge of exercise of voting rights through quarterly reporting from the delegated portfolio manager.
The consideration of the exercise of the vote shall form part of the functions of the portfolio management team. The discharge of fiduciary duty of oversight of the delegated portfolio manager shall primarily be the function of the compliance team with the support of the portfolio management team where required.
6. Conflicts of Interest
In the determination of how to exercise a voting right, LHM may encounter a conflict of interest in the following way:
- Competing interest between two of the funds it has under management;
- Competing interest between the interest of investors in the fund and LHM or a member of its group.
LHM considers the possibility of incidence of occurrence of the above scenarios to be rare and will defer to its conflicts of interest policy in the event it is faced with such conflict.
Where LHM has delegated the portfolio management, the delegated portfolio management must notify LHM of any conflicts of interest in relation to the exercise of any votes. If there are sufficient safeguards in place in relation to the resolution of such conflicts, and this has been agreed with LHM, the delegated portfolio manager may proceed to decide how to exercise the vote in accordance with its voting policy. If the conflict is not satisfactorily resolved, LHM may then determine if and how it should exercise such rights in accordance with paragraph 5 above.