Fund Solutions

Asset Owners to Reclaim Voting Power from Managers, Says AMX

New service supports split voting in pooled funds; DWS to use in new climate transition fund.

Asset owners can soon expect asset managers to follow their voting and ESG preferences more accurately in passive pooled funds, following the launch of a new tool – Investor Stewardship Service – by Asset Management Exchange (AMX).

The tool will democratise institutional fund ownership in such pools, returning voting power to investors and accelerating integration of ESG factors, claimed Christopher Head, Head of Business Development at AMX, a platform which centralises and streamlines investment processes.

The issue of asset owners’ votes being subordinated in pooled funds has persisted for many years.

“When trustees invest, too often they are being asked to select funds in advance, based on vague or sometimes non-committal voting policies and historic voting records which are opaque, inconsistent and sometimes incomplete,” said UK Pensions Minister Guy Opperman in a speech last year.

Commenting on the launch of the service, he said that “this [solution] will tackle, head-on, the industry practice of ‘invest in my fund, accept my voting policy’”.

Because many players are involved in the voting ecosystem in pooled funds, recognising individual votes can be complex.

Among the barriers that have hindered fund managers from implementing split voting in pooled funds are the technical difficulties and costs of setting up the needed infrastructure, a 2020 report by the Association of Member Nominated Trustees (AMNT) said.

“This solution we have leverages the current infrastructure to execute this [voting] in a scalable, efficient and low-cost manner,” Head said, pointing to the company’s ability to oversee the costs and ensure they provide good value to the end investor.

But he sees the process of returning voting power to asset owners as incremental over time.

“Companies with a large asset base in pooled funds enjoy a strong position of voting power at company annual general meetings (AGMs), because they have disenfranchised the asset owners from those votes,” he explained to ESG Investor.

The new pooled fund service, developed by AMX with German asset manager DWS, Minerva Analytics and Northern Trust, aggregates investor stewardship preferences and execute votes through voting policies.

Head said the service allows asset owners to choose between different voting philosophies on subjects like climate transition risk, board diversity and executive compensation, similar to the AMNT’s Red Line Voting guidelines.

Sarah Wilson, chief executive of Minerva Analytics, explained to ESG Investor that its technology will ensure that the vote splitting “accurately reflects the economic ownership”.

The service is planned to be used the first time by DWS with a low carbon/climate transition fund that is yet to be launched, a spokesperson at Willis Towers Watson, AMX’s parent, said, adding that the service can support pooled funds for any index investment strategy.

The launch of the service follows the establishment of the Taskforce on Pension Scheme Voting Implementation by the UK Government in December 2020 to encourage industry solutions linking investor preferences to corporate voting actions.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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