Tumelo CEO Georgia Stewart explains how technology is giving investors a stronger voice.
AGM season is about to get underway. Expectations are high for active shareholder engagement across the full spectrum of ESG risks and impacts, building on last year’s momentum. But this year will be different in at least one respect. For the first time, individual shareholders in the world’s largest asset manager’s index funds will be given a chance to flex their voting muscles.
At the start of the year, BlackRock Asset Management announced new technology that extended proxy voting choices to 40% of its index-linked funds, representing US$4.8 trillion in assets.
In addition to using BlackRock’s existing investment stewardship service, asset owners and other institutional clients will be able to vote using the asset manager’s voting infrastructure or pick from a list of third-party proxy policies.
This is a significant advance for an industry that has long dragged its feet on offering shareholder voting in pooled funds and other aggregated investment vehicles.
The inertia has been such that the UK government convened a Taskforce for Voting Implementation to improve the stewardship environment.
Last September, the taskforce recommended that “certain [asset] owners, depending on the legal structure of their investments, should be able to make expressions of wish and have them acted on by fund managers”.
But it also identified numerous complexities in the current system, notably in the ownership of assets in pooled funds.
“There is rarely a direct legal or operational connection between the investment product that a pension saver buys and the legal ownership records which the company sees. This therefore requires asset managers to undertake complex manual reconciliation tasks between separate record keeping systems to ensure accurate voting entitlement. The complexity is compounded when products are sold through multiple intermediaries or platforms.”
To put it another way, identifying shareholders in a pooled fund, then soliciting and aggregating their views on dozens of votes across hundreds of meetings, is just too difficult and expensive. In practice, it’s far easier, if less democratic, to let the fund manager to wield the voting power. Or, as has often been the case, back the board.
An earlier report from the Association of Member Nominated Trustees (AMNT) into the lack of voting rights for members of pooled funds, was damning of the fund management industry’s willingness to invest in voting technology for pooled fund and individual investors.
While “sophisticated electronic systems exist globally for trading and many other complex activities both within and outside of fund management” the same is not true of voting.
The AMNT report stated: “Investment in the proxy voting system has not, either historically or currently, been a priority for much of the fund management industry. To allow for effective stewardship, there needs to be significant investment or disruption to the current system to engender real change.”
And that change needs to happen quickly if asset owners – particularly pension funds – are to meet climate-related investment and reporting responsibilities being introduced under the Pension Schemes Act 2021.
Georgia Stewart, CEO of Tumelo – a company hoping to disrupt the stewardship space with software enabling beneficiaries to make clear how they would vote at AGMs – agrees fund managers have failed to invest enough in voting technology.
“It’s kind of mad to me that an asset manager can manage US$8 trillion of assets but not actually have any seed to invest in improving stewardship.”
She continues: “For the last for 20 years, the stewardship voice has been aggregated by fund managers. The large index providers have huge voting power on behalf of lots of underlying investors. Tumelo is trying to democratise that process and give those individuals a voice with the fund managers.”
That democratisation is important for pension funds, particularly those offering defined contribution schemes focused on increasing member engagement.
However, while noting that asset managers have been slow to improve voting rights for beneficiaries, Stewart says the industry response to Tumelo’s offering has been warm.
The platform informs investors where their assets are held and the resolutions tabled at upcoming company meetings, allowing them to say how they would vote. It has 75 fund manager partners in the UK including Legal & General Investment Management. The aim is to give both retail investors and pension fund beneficiaries a greater say over how votes are cast at AGMs.
Stewart says the BlackRock announcement indicates a growing appetite among fund managers to hear asset owners’ voices.
Stewart says: “What Tumelo is doing is aligned with the direction that the asset management industry is going. Blackrock’s commitment to giving a voice to the individual investor is a really important development. I think many other asset managers in industry are excited about this and while there are logistical and regulatory hurdles – mostly to do with fiduciary duty which we’re working through – this is definitely the direction of travel.”
Stewart says that the platform needs to find solutions that allow for greater stewardship at a beneficiary level without undermining their fiduciary’s responsibility to deliver returns.
The UN Principles for Responsible Investment has published a guide for asset owners on integrating beneficiaries’ preferences into their investment decision-making as key to helping pension schemes and others understand the importance of harvesting voting preference data.
The guide published last April says, “research and data analysis can help asset owners further understand general trends in beneficiary preferences”.
Stewart says: “We can help fund managers by showing how their voting aligns with that of their investors. They can access data to show that they are engaged on the same issues as their beneficiaries, and they can see how they compare to other fund managers when it comes to shareholder voting on the most important issues.”
While asset managers are a target for Tumelo, Stewart says it is the investment platforms or fund supermarkets that direct retail investments to funds from ISAs and personal pensions that can really make the difference in driving change for beneficiaries.
“If we really want to influence a manager, we can point out that we have £500 million of assets going to that manager through the platform and that they need to get on board with responding to how the beneficiaries want to vote.”
Looking to the future, Stewart wants Tumelo to be used to inform voting policies.
“My vision is that an individual will be able make clear the issues they do and don’t care about, and this will be reflected back to them in a voting policy that matches up with their values. This will automatically allow and encourage asset managers to vote with greater consideration for their investors’ views and values.”
Stewart’s vision for Tumelo extends beyond simple voting rights. She says the company – which plans to double its headcount by the end of the year – is exploring a wider ‘shareholder experience’ which would include access to company management and conversations with other shareholders.
She says: “We also want to see how we can bring the investor and consumer sides together because those two parts of life are detached. If you an investor and a consumer, how can you bring those elements together to make a business become more sustainable.”