Psagot encourages an institutional activism approach and acts accordingly. Such a policy maintains that institutional bodies must continuously have dealings with a spectrum of organizations in order to maximize protection of the interests of clients and members of the institution while carefully adhering to the law and to continuously bear in mind the risk levels suitable for various consumers.
Institutional activism is designed to ensure that high standards of corporate governance and behavior of controlling shareholders in the corporations which the public has invested in are maintained.
This activism is mainly being manifested as follows:
1. Participation in general meetings -
Psagot participates, pursuant to the law's requirements, in general meetings of corporations whose securities are found in the funds managed by Psagot on behalf of its clients and members. Psagot acts in accordance with the criteria and principles set forth by the company in all matters relating to subjects raised for a vote at these meetings (such as the compensation of officeholders, the distribution of dividends, appointment of directors, transactions made by interested parties in the company) and sees to it that Psagot takes an active part opposite these corporations to the extent required, both before the general meetings – requests for explanations and clarifications, additional material vital for discussing subjects on the agenda, as well as during and after these meetings. The aforementioned aims to secure the minority rights and the interests of Psagot’s clients and members.
Criteria for participating in general meetings
2. To improve terms of non-negotiable deals in general and deals involving alternative assets in particular -
To establish investment models and terms opposite organizations that wish to raise capital , in accordance with Psagot's members' and clients' needs.
3. Active participation in debt settlements and to conduct the terms and substance of debt settlements -
Psagot is committed doing its utmost to facilitate the repayment of debts by corporations that have previously raised monies from the public. Being an institutional body managing public funds, Psagot takes all possible measures to ensure that the monies of clients and members are returnedby those borrowing these monies .
The goals at the base of debt settlements
• Compensation to bondholders against increased risk (interest, stocks, options)
• Strengthening of the company's equity structure (conversion, injection of capital, restrictions)
• Handling of debt - preemptive rights
• Strengthening of corporate governance (reporting, transparency, approval of deals made by interested parties)
Debt settlement principles
• Compensation to bondholders for increased risk and extension of redemption dates
1. Compensation by means of interest
2. Bondholders participation in future upside / stocks / options / convertible bonds.
• Strengthening of the company's equity structure
1. Converting debt into stocks, capital injections, issuance of rights, owners' loans, confining dividends during periods of debt settlement s
2. Rewarding to interested parties during the debt settlement period is confined – wages / bonuses / management fees
• Pre-emptive rights in debt settlements
1. Parallel deferral of interest and principal payments to other creditors (including the banks)
2. Receipt of pledges and collateral and/or confining new pledges without bondholders' consent – negative pledge
• Strengthening corporate governance
1. Increasing the level of transparency and reporting – solo reports, large scale projects / companies
2. Approval of deals conducted by interested partiesalso at bondholder meetings
These are guiding principles. Each settlement shall be discussed separately, with emphasis placed on principles relevant to the specific case.
As opposed to acceptable, legitimate activity such as bonds being sold below their adjusted value on the market by an institutional body (such as for the purchase of another, more attractive or more suitable bond series on behalf of the portfolio or product under management), a situation where the owner of controlling interest in the corporation requests to change original bond terms, terms that are considered problematic at the time of issuance, Psagot believes that it must voice its opinion and act to prevent the damage.
Psagot considers this activity to be of considerable importance, and therefore employs a team of professionals to deal with corporate debt settlements (comprised of investment and credit management persons as well as legal counsellors).
The team discusses the bonds of companies where there is a possibility that they will not be able to repay their debt on the date of redemption and under the terms set forth. Psagot's team, proposes debt settlements, tracks and maps risks of the bonds and warns if actions will be necessary (such as requesting that the trustee convene a bondholder meeting or contacting the company to obtain information on the actions that the company intends to take in order to meet the required redemption of principal and interest).
The duties of the aforementioned team complement and are in addition those of the regulation unit's routine credit control and to the research performed by analysts in the group (this is based on the philosophy that financial bodies bear full responsibility for the selection of bonds in their investment decisions, while external credit rating companies are only another tool).