Bill Would Require Passively-Managed Funds To Vote Proxies As Instructed By Investors

Final week, U.S Senator Dan Sullivan launched a invoice to require passively managed funds to vote proxies as instructed by their traders.  I’ve not seen a duplicate of the invoice but, however in accordance with the Senator’s press launch, the invoice gives for the next:

  • Coated Funds: Contains passively-managed funds which might be non-public funds, employer-sponsored retirement funds, outlined profit and contribution pension plans, and TSP funds.

  • 1% Voting Energy Limitation: To restrict prices and never inundate fund traders with votes of each portfolio firm (for instance, the Vanguard Whole Inventory Market Index Fund holds 4,000+ corporations), voting selection is simply required if the funding adviser holds greater than 1% of an organization’s voting securities.

  • Routine Issues Exception: Funding advisers can’t vote with out directions from fund traders, apart from routine issues, like ratification of auditors, which can keep away from considerations about shareholder assembly quorums. Most notable issues, reminiscent of adjustments of management, director elections, and shareholder proposals usually are not routine.

  • Mirror Voting Exception: For shareholder votes requiring a majority or extra of the excellent inventory (e.g., merger approval), advisers could “mirror vote,” the place their votes are proportionately solid to not have an effect on the result.

  • Disclosure and Dealer Obligations: Funding advisers should present proxy statements and different supplies to fund traders. Funding advisers that present vote suggestions should allow third-party suggestions on a non-discriminatory foundation that permits for a broad range of views.

  • Price Burden: Bills for implementing pass-through voting are required to be borne by the funds or their funding advisers, and never by the portfolio corporations.

  • Protected Harbor: An funding adviser can merely chorus from voting altogether and keep away from the prices of acquiring fund investor directions. A secure harbor protects the choice to not vote from breaching any obligation beneath federal or state regulation.

The intent of the invoice is kind of clearly to decrease the ability of funding fund managers. If “mirror voting” is permitted, an unintended consequence could also be {that a} motivated minority might be able to decide the result of proposals requiring approval of a majority of the excellent shares entitled to vote.

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