UK - Pension funds should not underestimate the role foreign investors play in shaping domestic markets, a trustee of the Universities Superannuation Scheme (USS) has warned.

Speaking at the National Association of Pension Funds (NAPF) seminar on Corporate Governance earlier this week, Howard Jacobs, trustee director of USS, said the globalisation of investment means a "policy challenge for us all is how to apply an active ownership approach across portfolios as the world is becoming increasingly small".

Introducing a session on global policy trends, Jacobs argued concern about corporate governance scandals is the least important reason for getting engaged on a global level, in part because these scandals can happen anywhere. Instead, he suggested "rather more material is the recognition of how globalisation is increasing both the amount and pace of change".

For example, he said USS now invests more money overseas, 55%, than in the UK, 45%, and investments in the US account for 15% of total investments - making the US its second-largest market exposure.

Jacobs therefore suggested pension schemes and trustees "should pay attention to what is happening globally and should not underestimate the ability of foreign investors to shape domestic markets".

He said research has shown that the people who have made a difference in certain markets are foreign investors to that market "because the domestic market has not been at a sufficient stage of evolution to make a contribution".

He highlighted the work of USS which led to "pretty significant engagement with a Spanish company, where we helped organise a coalition but where there was no Spanish domestic institutional involvement at all".

"We are investing our money in a marketplace where the local domestic market is not geared for these sort of discussions themselves. This obviously goes to price issues, but it also indicates the size of the task ahead of us in terms of trying to make progress at this global level," said Jacobs. 

He told delegates that pension funds need to "think global and act global", as they should understand the ability to act collaboratively "is the way in which we maximise potential influence when engaging with companies overseas".

"USS thinks engagement internationally breaks down what we would regard as perceived barriers, rather than actual barriers, to engage with domestic markets. We think we can show if one addresses the issue with sufficient resolution you do actually start to develop a successful track record in engagement in parts of the world where it is not entirely straightforward, but where there is very substantial prospect of reward for making that engagement."

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