SEC Chair Questions Voting by Advisers Managing Index Funds
Commentary by Steven Lofchie
SEC Chair Paul Atkins emphasized the importance of the Investment Advisory Committee's review of how passive investment funds vote their shares - and the influence of proxy advisors on that vote.
In remarks before the IAC, Mr. Atkins explained that "assessing, and where warranted addressing," how passive vehicles vote and how proxy advisors influence those votes is a priority because of its profound implications for corporate governance, and for advisers’ fundamental fiduciary duty to act in their clients’ best interest. He argued that investment advisers, as fiduciaries, must vote client proxies in their client’s best interest and not their own.
On private markets, Mr. Atkins said embracing growth and innovation across asset classes and protecting investors were "compatible goals," as the SEC considers its role in increasing investors' "exposure to the full dynamism of our capital markets."
Commentary
In the case of truly "passive," funds, it is not clear whether advisers should be voting in the interests of their investors or voting consistent with their disclosures to investors. The latter means that they should be "passive" as opposed to taking a view on any individual item. If they describe themselves as fully passive, their votes could be cast by an algorithm that is described in their offering documents. If they do not vote in a passive manner, then they should describe the manner in which they vote, from which sources they take guidance or information, and the resources that they devote to proxy issues.