In a move likely to be heard round the globe, two of the world's largest institutional investors have formed an alliance that they hope will advance their corporate governance agendas.
The California Public Employees Retirement System (CalPERS) and the Hermes Pension Management System announced Nov. 23 that they are teaming up to create a transcontinental corporate governance strategic alliance. This is the first time such a multilateral partnership has been formed between institutional investors, according to a statement issued by the companies.
CalPERS, with $139 billion in assets under management, is the largest institutional investor in the United States. Hermes, with $59 billion in assets under management, represents two major pension systems in the United Kingdom, the BT pension scheme (the British word for a pension plan) and the Post Office Superannuation Scheme.
"Through this alliance, the corporate governance message will be louder and stronger, and will be heard in a voice that is influential and indigenous to each market," said William D. Crist, president of the CalPERS Board of Administration, in a statement.
According to CalPERS, the combined powers of the two organizations may mean greater shareholder pressure on U.S. and U.K. companies. In total, the duo have $62 billion invested in U.S. companies and $36 billion invested in U.K. companies. The alliance will give each organization more clout when questioning companies on performance and corporate governance-related matters, said CalPERS, in a statement. It said that it is preparing its annual list of poor-performing companies in its U.S. portfolio, which will become the focus of the system's shareholder activism in the coming proxy season.
CalPERS, for now, is limiting its list of poor performers to U.S. companies. But, the alliance with Hermes is part of a broad plan by CalPERS revealed to the public in early November to form similar alliances in other industrial countries, including France, Germany and Japan.
CalPERS' overall strategy is to institutionalize cross-border shareholder activism, says Stephen Davis, a principal in Davis Global Advisors, an international consulting firm in Newton, Mass.
"CalPERS is the only institution in the world that has put forward principles of corporate governance for markets other than their home market," he said. "They've really been breaking new ground." CalPERS' strategy is largely untested, says Davis.
"With the additional exchange of information between the members of the alliance, you will see more focus brought to issues that mutual funds will have to respond to," says Nell Minow, a principal in the Washington, D.C. office of the Lens Fund, a fund for institutional investors.