Principle 2

Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed

It is a fundamental requirement for a financial services firm such as M&G to act in the best interests of its clients and/or its beneficiaries, and identify and manage conflicts of interest. This is central to our duty of care. Accordingly, it is important for our clients to know that M&G will use all reasonable endeavours to identify conflicts, manage them effectively and treat our clients fairly.

M&G has a comprehensive Conflicts of Interest Policy which reflects both the nature of our business activities and our ownership structure (including any potential conflicts arising from our ownership by Prudential plc).

M&G staff are required to complete annual mandatory conflicts of interest training to ensure they understand all conflicts of interest that arise by virtue of the roles they perform, and are aware of the process for identifying and reporting conflicts, so that they can be managed in an appropriate manner. The M&G conflicts of interest disclosure statement can be found on our website. Please see the section below ‘Identifying conflicts of interest at M&G’ for information on the factors that are taken into account when identifying conflicts of interest.

On occasion, we may encounter conflicts of interest related to our stewardship activities. It is incumbent on all investment professionals and members of the Corporate Finance & Stewardship team to identify and manage such conflicts, in line with the wider M&G Group Conflicts of Interest Policy. In all such instances, our objective is to ensure that these conflicts are identified and managed appropriately to ensure our clients’ best interests are served.

Examples of conflicts that may arise in relation to stewardship activities are provided below. The potential conflicts arise both in the way the investee company monitoring and engagement is managed and in relation to voting activities where M&G is voting on resolutions.

In each case, where a conflict arises, the conflict is identified and reported, in line with the wider M&G Group Conflicts of Interest Policy and an appropriate plan for mitigating the conflict is agreed. This might include referring the matter to the M&G Conflicts of Interest Committee for deliberation.

Identifying conflicts of interest at M&G

In identifying the conflicts of interest that may arise when providing services to our clients, M&G will take into account the following:

a) Whether any M&G entity is likely to make a financial gain, or avoid a financial loss, at a client’s expense (firm versus client conflict)

b) Whether a client is disadvantaged or makes a loss when an employee or other person connected to an M&G entity makes a gain (individual versus client conflict)

c) Whether a client makes a gain or avoids a loss where another client makes a loss or is disadvantaged (client versus client conflict)

d) Whether an M&G entity, employee or fund benefits at the expense of another M&G entity or fund (intra group conflict)

Conflicts that arise from personal activities of employees (for example, outside appointments, involvement in public affairs, personal political donations and personal investments) are also closely monitored and managed.

Examples of other potential conflicts

A conflict of interest potentially arises where:

  • An employee or Director of any Prudential group company is also a Director of a company in which M&G invests;
  • M&G invests in a company that is a client of M&G; or
  • M&G invests in a company that is a significant distributor of M&G products.

In such instances, M&G may be conflicted, for example, in the way it deals with the Directors and/or company management, votes on their election and votes on remuneration policies that might apply to them.

Where a potential conflict arises, the conflict is reported in line with the wider M&G Group Conflicts of Interest Policy and an appropriate plan for mitigating the conflict is agreed. In determining the appropriate mitigation a number of factors will be considered. These includes the nature of the relationship with individuals and the extent to which the relationship could be managed by individuals who are not conflicted, the materiality of any contracts, and the risks of the potential conflict to client interests.

Interests of clients diverge on issues being voted on

On occasion, the interest of clients may diverge on issues on which we are voting. For example, where segregated mandates are being managed alongside a retail fund, or where clients within the same fund have different views.

We are able to vote shares differentially and will assess the voting of shares against each client mandate. Where client interests diverge, then we will vote accordingly, but this is a rare event.

Generally, M&G votes by proxy at general meetings on all holdings held in active funds. On occasion we will attend a general meeting where our clients’ interests are best served by us doing so.

Conflicts arising from M&G’s ownership of Prudential plc shares

M&G is a wholly owned subsidiary of Prudential plc.

M&G funds or segregated mandates may from time to time invest in shares of Prudential plc. Within the Prudential group there are also companies that invest as principal in investments in which M&G may also invest for clients.

Two conflicts arise – as Prudential plc is M&G’s parent, M&G may be inclined to favour investment in Prudential; and M&G may have access to information about Prudential’s corporate actions and investment decisions regarding their principal investments.

To manage these conflicts, both companies ensure that the operations and investment decisions are kept separate and independent. M&G’s investment decisions to buy and sell such shares and whether or how to vote in relation to those shares will always be solely made in the interest of our clients. The flow of information between Prudential and M&G is carefully controlled.

The rationale for voting in a specific way is recorded to ensure transparency on any voting decision.