Chapter 1 Institutional Investors and Their Duties
Institutional investors can be classified into two types based on their business models:
With financial services gradually becoming diversified, capital providers not only engage directly in trading of relevant assets (including securities such as stocks and bonds or other assets) but also achieve various investment objectives through the assistance of institutional investors.
- "Asset owners" (e.g. insurance companies, pension funds) which invest with their proprietary capital or funds collected from clients or beneficiaries; and
- "Asset managers" (e.g. investment trust, investment consulting companies, etc.) which provide assistance to clients on management and investment/utilization of funds.
Nowadays, the investment chain is frequently complicated and institutional investors can greatly influence the market and investee companies through fund management. An institutional investor, when making an investment or carrying out its fiduciary duty, shall base on fund provider's (may contain clients, beneficiaries or shareholders of the institutional investors) long-term interests, monitor the operation of an investee company and participate in corporate governance through attendance at shareholders' meetings, exercise of voting rights, engagement in appropriate dialogue and interact with management, including board of directors or executives, of the investee company. Such is "stewardship" of an institutional investor referred to in these Principles.
Institutional investors may outsource part of their stewardship activities (e.g. to provide voting advice or to cast proxy votes) to other professional service providers (e.g. proxy advisory firms or custodian banks). However, institutional investors shall not be released from their existing stewardship responsibilities to their clients and beneficiaries. The institutional investor must, through effective communications, agreements or monitoring, ensure that service providers act in accordance with their requests, so that the rights and benefits of their clients and beneficiaries are protected.