Will ‘split voting’ in pooled funds ever become mainstream?

Dominic Webb speaks with asset managers and owners about whether recent moves mark a tipping point for split voting

Many of the world’s largest asset managers remain wary of allowing clients in pooled funds to vote their shares, despite growing frustration from asset owners. 

While Legal & General Investment Management (LGIM) – the UK’s biggest investment house – told RI that ‘split voting’ was the “undoubted direction of travel”, State Street, Vanguard and abdrn all said they had no plans to implement it, although they are monitoring ongoing developments. Fidelity declined to comment. 

A spokesperson for State Street, one of the three largest asset managers globally, told RI it was aware some of its clients would like it to implement voting preferences. “Although some barriers remain in place which can restrict our ability to apply a client-specific voting policy when investing via a pooled fund structure, we are committed to monitor ongoing developments on this issue and review our policies going forward.” 

‘There is widespread reluctance amongst asset managers in terms of taking clients’ wishes on board in a systematic way’ – Maria Nazarova-Doyle, Scottish Widows

A spokesperson for fellow ‘Big Three’ asset manager, Vanguard, said: “Our Stewardship programme provides value to investors through extensive research and analysis, policy development, and ongoing vigilance of material governance, social and environmental risks to shareholder value in markets around the world. As we continue to look for ways to further empower investors and broaden our stewardship capabilities as our programme evolves, we will do so with our investors’ best interests in mind”.  

UK-based asset manager Abrdn said that it had explored the possibility but was not looking to implement split voting. Mike Everett, the asset manager’s Head of Stewardship, said that there were administrative and legal issues, including the fact that split voting is legally impossible in some jurisdictions.  

“Our current view is that voting is an integral part of our stewardship activities and that offering client-directed split voting in our pooled funds may diminish our ability to meet the standards of stewardship we endeavour to deliver,” he explained. Abrdn will instead “continue to explore viable ways to understand their views and preferences rather than executing specific split voting instructions on their behalf”. 

However, there are signs that some managers are making the shift. DWS, one of Germany’s biggest investment houses, launched a split voting service in partnership with Northern Trust, AMX and Minerva Analytics in February; and at the start of October, the biggest asset manager in the world, BlackRock, said it would give asset owners a say on up to 40% of its passive equity holdings.  

In September, a report by the UK government-established Taskforce on Pension Scheme Voting Implementation criticised the “asymmetry of power” between pension schemes and their agents, and said that “many fund managers seem to offer very poor client service”. Last month, the Financial Conduct Authority confirmed that there were no regulatory barriers to doing so. 

Maria Nazarova-Doyle, Head of Pension Investments and Responsible Investments at Scottish Widows, who was a member of the taskforce, said that its work has shown “there is widespread reluctance amongst asset managers in terms of taking clients’ wishes on board in a systematic way – as well as the fact that asset managers’ voting policies aren’t always fully transparent and reporting isn’t all-encompassing”. 

Nazarova-Doyle praised BlackRock’s move, saying it “really stands out and has the potential to move the industry. This means asset owners like Scottish Widows will have much wider scope to better represent our clients and pension scheme members”. Scottish Widows will be using the facility from next year, she added.  

Stuart Murphy, co-Head of DC at LGIM, told RI that implementing split voting was “the undoubted direction of travel”. “Clients are asking for this type of thing and we’re working in the background to see what that’s going to look like in the future,” he added, but would not provide details about timeframes.  

LGIM is working with fintech Tumelo to allow individual scheme members to influence its voting policy. The Tumelo app allows scheme members to see and provide feedback on upcoming resolutions at companies held by their pension fund. Feedback is fed into LGIM’s stewardship team and used to inform its voting policy.  

“We have to make sure we’re aligned to what members want,” Murphy said. Around 70% of votes cast by members are in agreement with LGIM, with one noticeable area of divergence surrounding executive pay. Whereas LGIM will vote on pay packages according to structure or value for money, Murphy said “members see it as much more black and white, in that they see executive pay as bad and may well vote against it.”