How To Manage Conflicts Of Interest At Barings

Transcription

1 Barings conflicts of interest policy SECTION A: INTRODUCTION Business activities & organisational structure of Barings The Barings companies provide discretionary investment management services. They also sell Barings funds and services direct to institutional clients and through other professional distributor firms. Barings ultimate parent company is Massachusetts Mutual Life Insurance Company. The principal intermediate Barings company is Baring Asset Management Limited (BAML); which is the governing body of Barings. The members of the Board of Directors and the Management Committee of BAML are responsible for ensuring that: (a) reasonable measures are taken to identify conflicts of interest; (b) effective organisational and administrative arrangements are maintained to prevent conflicts of interest from adversely affecting the interests of Barings clients; (c) records are maintained of the kinds of services/activities carried out by or on behalf of Barings in which conflicts of interest entail, or may entail, a material risk of damage to the interest of one or more clients. Definitions of terms used in this Policy Affiliated company: means Massachusetts Mutual Life Insurance Company and its subsidiaries that are not part of Barings. Barings: means BAML and its subsidiaries and Baring North America LLC (but excluding Baring Asset Management Korea Limited). Barings Funds: means open-ended collective investment schemes/mutual funds and closed end funds that are established, sponsored and managed by Barings. Clients: means institutions and individuals to whom Barings provides discretionary investment management services. Client Mandate: means the specific investment policies, guidelines, restrictions and risk tolerances set out in the investment management agreement between each client and Barings. Controls: means the policies, procedures, organisational and supervisory arrangements designed, established and implemented by Barings to manage and monitor the conflicts of interest set out in this Policy. Employees: means directors, officers and employees of Barings. Securities: means shares, bonds and other financial instruments. Purpose of this Policy The purpose of this Policy is to summarise the potential conflicts of interest arising in the conduct of investment business by Barings that could present material risk of damage to the interests of Barings clients in the absence of Controls. The conflicts of interest are: (a) as between Barings and/or its employees and clients; (b) as between one client/group of clients and another client/group of clients and, (c) as a result of the structure and business activities of Barings or its relationship with its affiliated companies; and the key Controls. The conflicts of interest and the Controls are summarised in section B below. In addressing any situation of conflicts of interest, Barings overriding principle is to act in the interests of its clients. Barings approach to managing or dealing with conflicts is to incorporate the required detailed Controls within specific policies and processes relating to the relevant subject matter/activities conducted by Barings companies and departments. Consequently, each of the conflicts (and related arrangements) that are summarised below, are subject to separate detailed individual policies and/or procedures. The full policies are available from Barings, on request. The potential conflicts identified by Barings, and summarised in section B, arise in the conduct of its discretionary investment management activities. The Controls are designed to demonstrate that robust processes are in place to reduce the possibility of material risk of damage to the interest of Barings clients by virtue of Barings and/or its employees being capable of: (i) making a financial gain, or avoiding a financial loss, at the expense of a client; (ii) having an interest in the outcome of a service provided to a client or of a transaction undertaken on behalf of a client, which is distinct from the client s interest in that outcome; (iii) having a financial or other incentive to favour the interest of one or more clients over the interests of another client or clients; (iv) carrying on the same business as a client; and (v) receiving from a person (other than a client) an inducement in relation to a service provided to a client, in the form of monies, products and/or services, other than the standard agreed or disclosed fee or commission for that service. The Conflicts Policy is reviewed at least annually to ensure that the potential conflicts and controls remain applicable. Potential new conflicts are considered as part any new business development and/or business process changes. SECTION B Dealings and arrangements with Affiliated Companies Potential Conflicts: In undertaking business for its clients, Barings dealings or other arrangements with affiliated companies present possibilities for Barings to treat its affiliated companies more favourably than unaffiliated clients. Barings Controls: Barings provides discretionary investment management services to affiliated companies and investment vehicles sponsored by affiliated companies. Affiliated companies also invest in Barings Funds. However, in respect of all such services provided by Barings to its affiliated companies, the terms of the service/investment, fees and other charges paid to Barings and the treatment of such affiliated company clients are provided on an arms length basis and they are treated on the same basis and in accordance with the same procedures/processes as those which apply to Barings unaffiliated clients. Certain aspects of the structure of Barings and its affiliated companies, and due to a number of services not being provided/conducted by them, ensure that a number of conflicts of interest do not arise. These are: (a) neither Barings nor its affiliated companies: (i) issue securities for investment by the public, therefore, Barings could not invest in any such securities for clients; (ii) provide banking or custody services and therefore such services cannot be provided to Barings clients; (iii) act as advisers, manager or arrangers in an issue of securities by another company or is

2 involved as lead or co-managers in placings, new issues, underwriting or offers for sale or otherwise receive remuneration for acting in a corporate finance or similar transaction involving a company whose securities are held by Barings clients, (b) Barings does not publish written research recommendations for clients or any third parties to act upon. Market analysis and overview reports are provided to clients as part of their periodic valuations, however, no recommendation is made to buy, sell or retain any security. [Barings s analysts will not be aware of any publication intended to be sent by Barings affiliated companies of written recommendations, or a piece of research or analysis, to their clients.], (c) no transactions are effected by Barings on behalf of its clients with, or through the agency of, any affiliated company that is a broker/dealer. Dealings by Barings directly with clients Potential Conflicts: Buying for and selling to clients, securities from Barings own account; undertaking any other transaction directly with Barings could give rise to possibilities of unsuitable investments being made for a client and Barings obtaining unfair financial gain. Additionally, undertaking any other transactions on behalf of clients in relation to which Barings receives any compensation, commissions or fees from a third party (which has not been agreed with or disclosed to a client) who is the issuer or otherwise has an interest in that transaction could benefit Barings at the expense of its clients. Barings Controls: Barings does not act in a principal capacity with its clients (i.e. it does not buy from, or sell to, its clients any securities from its own account). Its role is always that of an agent of its clients. Securities are purchased and transactions undertaken for clients through third party brokers and other counterparties (such as banks). For Client Mandates that permit Barings to invest on behalf of clients in Barings Funds, investments made for the client portfolio exclude either all or a proportion of the management fee Barings receives for management of the Barings Fund. No incentive or remuneration is provided to portfolio managers or any other employees to invest in Barings Funds and any such investments must be permitted by the client and be suitable having regard to the Client Mandate. For Client Mandates that permit Barings to invest on behalf of clients in third party funds, any rebate Barings may receive will be passed to the client. Barings may undertake transactions on behalf of clients in securities issued by another client (e.g. where that client is a listed company and its securities form part of an index). In such circumstances, the relationship with the client that is the issuer of the security is required to be disregarded and any investment decision taken is solely on the basis of the investment rationale and suitability. Segregation of duties Potential Conflicts: Activities and roles of employees involved in making investment decisions and/or monitoring investment restrictions, investment risk or arranging execution of client trades could present possibilities for such employees to favour or disadvantage one or more clients and to gain financial benefits if they were able to influence the selection of brokers/counterparties without appropriate Controls. Barings Controls: These are designed to ensure that clear segregation of duties is maintained between employees and processes involved in investment decision making and those involved in monitoring investment restrictions, investment risk and execution of transactions. Investment and borrowing restrictions: Client investment and borrowing restrictions are monitored by the Operational Compliance Unit. This team is independent of the Investment team and report through to Barings Chief Operating Officer. Investment Risk: The level of investment risk in a client s portfolio is monitored by the Investment Risk team. This team is independent of the Investment team and report through to Baring s Chief Operating Officer. Execution of transaction: Portfolio managers are not permitted to select or instruct a broker/counterparty to execute a transaction. The brokers/counterparties from whom execution price quotes are sought and the selection of the broker/counterparty to execute a trade must be determined by the dealers and orders are permitted to be relayed to brokers/counterparties only by the dealers. This separation of duties is further reinforced by the separation of reporting lines of portfolio managers, who report directly or indirectly to Barings Chief Investment Officer and, the dealers who report through to Barings Chief Operating Officer. (Note: For OTC derivatives the Dealers will obtain quotes and Investment Managers will select which ones they wish to execute against. The Dealers will then confirm best execution.). Barings Credit & Counterparty Committee is responsible for reviewing and approving each broker/counterparty that is permitted to be used to execute a trade on behalf of a client. Only brokers/counterparties approved by the Credit & Counterparty Committee are permitted to be used by the dealers to execute client trades. Fair allocation & participation in investment opportunities Potential Conflicts: The processes involved in the research of securities, execution of trades, allocation of securities forming part of a trade, participation in Initial Public Offering ( IPOs ), private placements and sub-underwritings could result in unfair trade execution or allocation across clients accounts of investment opportunities and trades being executed in priority to favour one or more clients at the disadvantage of other client(s). Barings Controls: Research of securities: All securities have to be rated or approved before they can be purchased. Aggregation of Orders: Barings dealers generally seek to aggregate orders for more than one client in circumstances that they reasonably believe will result in a more favourable overall execution. Due to market movements or depending on the liquidity of the security, it may not be possible to receive the same execution price or to execute the whole order. In such circumstances, Barings may allocate securities purchased/sold at the average price of the executed trade. Aggregation may not be possible in certain circumstances, for example, client directed trades (i.e. where a client has specified the brokers/counterparties permitted to be used for trades for their account) and the broker/dealer is not on the list of Barings approved brokers/counterparties. Transaction Order Priority: Barings dealers are required to arrange execution of orders in due turn amongst all orders received by the dealing desks. Orders received by the dealers throughout the day are added to the consortium of outstanding orders awaiting execution. Certain circumstances may arise where strict due turn is not possible, for example, client directed orders and orders in markets which do not permit average prices. Such examples represent a small percentage of Barings business. Allocation of Investments: Barings requires that subject to the terms of each Client Mandate, portfolio managers consider participation in an Initial Public Offering, private placement or sub-underwriting for

3 each client. For aggregated orders the intended allocation across client accounts is recorded prior to the deal being placed. Barings dealers aim to fill the order in a reasonable number of tranches. Where an order is not fully executed (e.g. due to lack of liquidity), the executed amount is normally allocated to clients on a pro-rata basis to the original intended allocation. However, where only a small percentage of an order is filled, the amount of the order filled may be allocated to a few clients rather than to each intended client; thereby avoiding transaction costs for each such client. In certain circumstances an allocation of a trade may be changed and re-allocation procedures must then be applied. This includes situations where: (i) an error occurs either in the intended basis of allocation or the actual allocation. The re-allocation must be fair and the justification for it recorded; (ii) the order is only partially executed and results in an uneconomic allocation to some clients (as outlined above). A re-allocation must reasonably be in the best interests of all the affected clients. For participation on behalf of clients in initial public offerings, private placements and sub-underwritings, the procedures similarly require pre-allocation of participation in such investment opportunities. If the full amount of an initial public offering subscription made by Barings on behalf of its clients is not received, due to scaling back, economic size and preferences for minimum holdings will affect the allocation. Records of the reasons for deviating from a pro rata approach are required to be kept. Underwriting for clients is participated in proportion to any existing holdings of client portfolios. Records of the reasons for deviating from a pro rata approach are required to be kept. Cross-trades: In some instances the orders for both the purchase for one client and sale for another client of the same amount of the same security may be arranged. In such cases Barings arranges the execution of both sides of the trade through an independent broker/counterparty. Such transactions are only effected where Barings determines it to be in the best interest of each client and subject to the Client Mandate and all applicable regulations. Trade Errors Potential Conflict: Where Barings makes an error whilst trading (for example a breach of a client investment restriction), Barings may not promptly rectify the error and compensate the client appropriately to avoid a financial loss. Barings Controls: Barings has established an Incident Reporting policy which requires the prompt reporting and rectification of all incidents (including trade errors). The policy requires that Barings reimburse the client for any loss incurred. The Incident reporting and investigation processes and controls in place ensure that clients are not disadvantaged by any trading error made by Barings. Positions held by employees in firms other than at Barings Potential Conflict: Employees who are portfolio managers, dealers or who may otherwise have a position of influence within Barings or who have access to client trade/portfolio information and, who contemporaneously hold similar positions with other another firm that issues securities which are or could be invested in by Barings for its clients or where such a firm carries on the same/similar activities as Barings carries the potential for such employees being capable of using their position and information obtained from either firm to obtain financial gain or avoid a loss. Barings Controls: These apply to all employees. If an employee wishes to accept/take any position with an entity external to Barings as a director, officer or any position having any fiduciary responsibilities or involvement in handling/overseeing finances, whether or not he/she will be remunerated and/or committing time during Barings working hours, prior consent of Barings senior management is required. In considering any such request, the considerations applied include the suitability of the individual for that role, any conflicts which may arise, issues of client confidentiality, sensitive/inside information and any other pertinent matters involved. Barings reserves the right to deny, or impose conditions in respect of, any such request made by an employee. Even if approval is given, the individual may not be permitted to derive any personal benefit by way of any remuneration received in respect of the third party role. New employees are required to disclose any positions held and are also subject to the same approval procedures as outlined above. A register of all such approvals given to employees is maintained by the Compliance Department. Proxy voting for clients Potential Conflicts: Where clients permit Barings to exercise voting rights attached to securities held in their portfolios, the conflicts of interest include circumstances where: (i) the company soliciting the vote is a client of Barings and, (ii) the portfolio manager who is involved in making the voting decision (or a person connected with him/her) is a director, officer, or employee of the company soliciting the proxy. Barings Controls: Barings has established a Proxy Voting Policy which is overseen by the Proxy Voting Committee. The policy is designed to ensure that votes are cast in accordance with the best economic interest of clients. The proxy voting process is managed and co-ordinated by the Investment Operations area of Barings. Barings uses the services of Institutional Shareholder Services ( ISS ), an independent third party service provider to provide proxy analysis, information on events requiring voting, vote recommendations, and to execute the voting decisions of Barings investment teams. Barings ordinarily vote clients proxies according to ISS s proxy voting recommendations. Proxies on all proposals are voted, except in those instances when the portfolio manager, with guidance from the Proxy Voting Committee if desired, determines that the cost is outweighed by the economic benefit to the clients of voting those proxies. Portfolio managers may override ISS s recommendations if they believe that ISS s recommendations are not in accordance with the best economic interests of clients. In the event that the portfolio managers disagree with an ISS recommendation on a particular voting issue, the appropriate portfolio manager must record the reasons he/she believes that the ISS recommendation is not in accordance with clients best economic interests. To the extent a client has instructed Barings how they would like Barings to vote proxies on particular issues of corporate governance or other matters, Barings will be responsible for voting in accordance with the client s instructions. In the event of a vote where a portfolio manager has disclosed a conflict of interest relating to the company soliciting the vote or where ISS is conflicted and also where the portfolio manager is seeking to override ISS recommendations, the Proxy Committee is required to review the issue and direct ISS how to vote the proxy. The minutes of the Proxy Committee must describe any real or perceived conflict of interest, how the conflict has been addressed, and confirmation that the recommendation as to how the proxies are to be voted is in the best economic interests of clients and was made without regard to any conflict of interest. Receipt & offer of inducements Potential Conflicts: The giving or receiving by employees of gifts, hospitality or other benefits may constitute a material inducement to act to the advantage of one or more clients. Additionally, payments

4 made by Barings to or received from other firms for the introduction/retention of business could act to the disadvantage of one or more clients Barings Controls: These govern the offering/giving and soliciting/accepting of gifts and hospitality and any other benefit or inducements. Any gift/hospitality employees receive or provide must not be of such an amount nor so frequent as to materially conflict with any duties owed to Barings clients. The basic requirement, which applies to all employees, is that any gift/hospitality received/dispensed of a value over a specified threshold monetary value must be reported to the line manager and a Compliance Officer. If the recipient wants to keep a gift, he/she may do so only with the approval of the line manager and a Compliance Officer and provided that the fair market value is donated by the recipient to a charity. If the recipient does not want to keep the gift, it must be donated to a charity. Additional requirements apply to staff holding specified positions, including portfolio managers, sales, analysts and dealers: (a) any gift/hospitality received or to be offered by such an employee of a specified monetary value (the higher threshold amount ) requires the prior approval of his/her Head of Department and a Compliance Officer; (b) each item of gift/hospitality received or dispensed above a specified minimum threshold must be recorded on a monthly register, together with any item previously approved which was of a higher threshold amount. The Head of Department is required to review and sign the register and in so doing he/she is also required to consider whether there is any undue frequency of gifts/hospitality prior to the register being submitted to the Compliance Department. Barings Compliance personnel undertake periodic reviews to independently assess, and report on, whether any gifts/hospitality given or received by employees appear to be excessive. The Compliance Department also monitor any breaches of the Controls and are required to report breaches to Barings senior management as part of regular monitoring reports provided by the Compliance Departments. Payments made by Barings to or received from other firms for the introduction/retention of business will only be made where disclosure of such payments has been made to the underlying client. Dealings and potential dealing with trade counterparties where a connected person is employed Potential Conflicts: In undertaking business for its clients, Barings dealings presents possibilities for Barings to treat trade counterparties more favourably where connected persons are employed. Barings Controls: Barings dealers are required to declare to the Compliance department and the Head of Dealing whether they have connected persons employed with actual or potential trade counterparties. The Compliance department maintains a log of such connections and takes these into account in its periodic trade monitoring. Personal Account trading by employees of Barings Potential Conflicts: Employees who are either involved in the investment decision making for clients or who have access to information about trades effected for clients, could use such information to carry out (for themselves or other persons connected with them or over whom they have influence) transactions in the same security (or a related security) to acquire financial benefit. Portfolio Managers who invest in funds that they manage could favour these funds over other portfolios that they manage. Barings Controls: Subject to certain exceptions (e.g where a third party investment firm manages an employee s investment portfolio wholly at the discretion of the third party firm, mutual funds not managed by Barings), employees are required to obtain prior written authorisation to effect a trade in a security for their own account or that of any person connected with them ( PA trade ). A PA trade request is submitted to the relevant Barings investment team(s) and dealers for review and authorisation/denial. If permission for a PA trade is granted, it remains valid only for 24 hours. A copy contract note must be sent directly by the employee s broker to the Compliance Department of the Barings office for which he/she works. Unless the specific written consent of a Compliance Officer is obtained, permission to transact the PA trade will be refused if either side of the date of the PA trade request, a transaction in the same investment (or related Investment, such as warrants or options) has been, or is to be, effected for a Barings client (therefore a blackout period of seven business days applies). Any consent provided by a Compliance Officer to trade within a blackout period can only be given in exceptional circumstances and subject to the Compliance Officer being satisfied that: (a) the proposed PA trade could not reasonably be expected to disadvantage any clients and, ordinarily, only where the employee has been denied permission on numerous attempts. Permission is more likely to be granted if the PA trade involves a small amount of a security in an issuer that has a very high average daily trading volume, such that the PA trade will not materially affect the price of the investment; and (b) the employee has no involvement in, and no access to, the investment decision making, formulation of investment strategy or making of any investment recommendations to any client for whom Barings has traded or is dealing in the same security. The Compliance Officer is required to make a full and detailed record of any consent given, including the reasons as to why he/she is satisfied that the abovementioned requirements have been satisfied. Any investment made by an employee in a Barings Fund must be held for a minimum of 30 calendar days. In extenuating circumstances only, a Compliance Officer may grant permission to sell such a holding within the 30 day period, however, any such permission will only be given if the Compliance Officer is satisfied that: (i) no conflict of interest arises (for example, with regard to the role of the employee and the relevant Barings Fund), and (ii) the proposed sale could not reasonably be expected to disadvantage other investors in the Barings Fund. The Compliance Officer is required to make a detailed record of any consent given, including the reasons as to why he/she is satisfied that the abovementioned conditions here have been satisfied. All PA trades are monitored by Barings Compliance personnel and the Compliance Department checks that: (a) each PA trade effected has been properly authorised and reconciles against the trade confirmation received from the employee s broker; and, (b) client trades executed by Barings in the same security to ensure that there is no evidence of front-running or back-trading; and (c) there are no other breaches of the Controls. Contraventions of the Controls are required to be reported to Barings senior management as part of regular monitoring reports provided by the Compliance Departments. Portfolio Managers investment in their own funds is monitored by Compliance as part of its periodic trade monitoring to ensure that they are not favouring these funds over other portfolios. Barings remuneration policies, arrangements and approvals are established or approved by Baring Asset Management Limited s HR and Salaries Committee. Barings remuneration structure for investment professionals reinforces the importance of targeting consistent investment out-performance across all portfolios. Flow and use of price sensitive information acquired relating to a

5 security Potential Conflicts: Employees who have acquired information about a security that is not publicly available and which, if it were made public, would have a material impact on the price of that security could use or disclose such information to obtain a financial gain or avoid a loss for themselves or other persons. Barings Controls: These are designed to ensure that they prevent or deal with receipt/handling of any price-sensitive information as between Barings companies (and their departments) and as between Barings and its affiliated companies. Employees are notified of the prohibitions that apply and the legal consequences of insider dealing. Portfolio managers are required to make investment decisions and dealers to execute trades, only on the basis of information that is in the public domain If an employee acquires (or believes they have acquired) inside information about a security or its issuer, he/she is required to promptly discuss the matter only with a senior Compliance Officer. The Compliance Officer will assess and determine any particular course of action to be taken and whether or not the security (and any related investments such as options, warrants) is to be inserted on the Stop List maintained by Compliance. If the security is inserted on the Stop List, this will ordinarily result in Barings not being able to engage in any trading or dealing activities for its clients and permission for any personnel account trade in the security requested by an employee will be refused. On being made aware that an employee has been made an insider the Senior Compliance Officer will advise the employee of his/her obligations, including, not to inform any one else about being made an insider or the inside information acquired and, not to deal, advise or encourage anyone else to do so in the security (for Barings clients or otherwise) until he/she has been informed by a Senior Compliance Officer that he/she is no longer an insider. The Senior Compliance Officer will record in the Insider Register the required details including the security/ies; employee s name, manner and by whom he/she was made an insider, date and time and, when the insider ceases being an insider and the reason( e.g. the inside information being made public). Any removal of an investment from the Stop List is only made when the information ceases to be price sensitive. Where an employee who has been permitted to accept the role of a director, officer, trustee, investment committee member etc of any non-barings company which is listed receives, whilst acting in that capacity, inside information relating to a security issued by that company, he/she is required to ensure that such information is not disclosed to any other employee or any other person (other than in accordance with requirements of the company in relation to which the position is held -e.g. the professional advisers of that company/entity). Employees holding such positions must also ensure that they do not disclose to other employees any information about or acquired from that company and also to that company any information relating to Barings clients and their portfolios. Tel: +44 (0) Fax: +44 (0) IMPORTANT INFORMATION This document is issued by Baring Asset Management Limited, authorised and regulated by the Financial Conduct Authority. August 2015 Baring Asset Management Limited 155 Bishopsgate London EC2M 2XY