Pension funds and institutional investors on both sides of the Atlantic have welcomed BlackRock’s announcement that it will give asset owners a say on proxy votes across up to 40% of its index equity holdings.
The asset management giant, which holds $4.8trn in index equity assets, said that from 2022 it would begin to roll out the option for investors to vote their shares in index strategies and some pooled funds in the US and UK.
Investors will be able to vote according to their own policies, choose from a selection of third-party policies provided by proxy advisor ISS or continue to use BlackRock’s in-house stewardship and voting service. Investors with separate institutional accounts will be able to vote directly on selected resolutions and companies.
While the option will initially only be available for some funds, BlackRock said that it was committed to allowing its clients to take part in proxy voting decisions “where legally and operationally viable”, and that it is “committed to exploring” the expansion of the service to exchange-traded funds, index mutual funds and other products.
The announcement comes amid growing friction between asset managers and owners over voting decisions. Traditionally, investors in pooled funds have had no say in how their shares are voted, with managers citing regulatory, technological and cost barriers to setting up voting services.
At the end of September, a report by the UK government-established Task Force on Pension Scheme Voting Implementation (TPVSI) spoke of “attitudes of incumbency and complacency so worrying as to require comment”, and said that “many fund managers seem to offer very poor client service” in this regard.
TPVSI’s report said that none of the common arguments against split voting “appear material or insuperable”, and said that the UK government could legislate to force asset managers to allow investors a say if the market did not move quickly enough.
In February, asset managers DWS and Northern Trust partnered with proxy advisor Minerva Analytics and Asset Management Exchange to create a service to allow investors to cast votes in pooled funds. The service aggregates investor preferences within the fund and votes accordingly, splitting votes when preferences are in conflict.
DWS declined to comment on the take-up of its own offering, but its Head of Pensions Advisory and EMEA Consultants, Shalin Bhagwan, welcomed BlackRock's move. "The main challenge is now to ensure that fiduciary managers as well as asset owners and their advisers grasp the nettle and seek to drive forward a different stewardship approach for their pooled fund investors who, for too long, have been second-class citizens when it comes to the stewardship debate", he said.
Asset owners on both sides of the Atlantic have welcomed such moves. Maria Nazarova-Doyle, Head of Pension Investments at £170bn pension provider Scottish Widows and a member of the TPSVI, said the latest announcement was “a welcome step change”.
“We are looking forward to exploring this innovative proposition with BlackRock ahead of next proxy season. They have developed an exciting capability, and our hope is that today’s news will act as a catalyst for others in our industry to consider how they can more directly facilitate participation in proxy voting”.
Sarah Wilson, CEO of Minerva Analytics and TPSVI Vice-Chair, said: “We’ve always known it was possible to support pooled fund split voting because we’ve been doing it for years for our clients”.
“Rather than something to be feared, these developments are a great way for asset managers to get more aligned with asset owners on their investment and stewardship strategies,” she continued. “Regrettably, as many regulatory papers have identified, there are a lot of vested interest blockages in the system”.
Chris Phillips, Director of Institutional Relations and Public Affairs at the Washington State Investment Board, said that a vital part of the $172bn fund’s fiduciary responsibility was “asset stewardship and our ability to ensure responsible alignment between the proxy voting practices of asset owner and asset manager […] This sort of technological and operational advancement is helping us implement responsible voting practices”.
Phillips said that the announcement fitted with the industry trend of customisation toward investor stewardship needs.