US SEC proposes rules urging hedge funds and endowments to disclose votes

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WASHINGTON / BOSTON, Sept. 29 (Reuters) – The leading U.S. securities regulator on Wednesday proposed to require large hedge funds and endowments to disclose how they vote on executive compensation, aligning that handful of influential investors on other top funds that have paid public votes for a decade.

The proposal, subject to a 60-day public comment period before further action can take place, would also require investors to provide more details on how stock lending affects proxy voting as well as prescribing how funds and managers organize their reports by requiring the use of a structured data language to facilitate analysis.

Wednesday’s 4-1 vote in favor of the changes by the Securities and Exchange Commission (SEC) is Democratic President Gary Gensler’s first rule proposal.

Together, the changes made by the Democratic-led agency aim to bring more transparency to annual meetings of shareholders, in part by implementing rules mandated by the 2010 Dodd-Frank financial reforms.

According to compensation consultant Farient Advisors, the average total salary of CEOs of S&P 500 companies rose 52% to $ 12.18 million in 2020, from $ 8 million a decade earlier.

Among other things, shareholders mandated by Dodd-Frank have the ability to cast so-called “say-on-pay” advisory votes on executive compensation, which have focused on CEO compensation at many times. annual company meetings over the past decade.

The votes, combined with disclosures that large mutual fund companies have filed since 2004 via Form N-PX, had already caught the attention of top asset managers. Read more

But Democratic SEC Commissioner Allison Lee told an industry audience in March that the Form N-PX disclosures are too onerous to show retail investors how their money is being voted on and because they are currently not being voted on. not deposited by certain investment companies. Read more

Republican SEC Commissioner Elad Roisman voted in favor of the proposed changes, breaking the ranks of his minority counterpart, Commissioner Hester Peirce, who was the only dissenter.

“The discretionary changes to Form N-PX are being proposed in the name of increased transparency… but they could hurt investors,” Peirce said, adding that proxy voting is not the most important activity in which a fund commits.

“These changes are unlikely to influence an investor’s choice to invest in a particular fund.”

Some managers have given up their voting rights in exchange for commissions when they lend shares to short sellers. While this may lower costs for investors, it also changed the outcome of corporate elections, the attorneys said.

Industry groups say if the SEC’s proposals turn out to be too costly, those charges would be passed on to shareholders of the funds. They also said the success of the SEC rule change may hinge on how quickly vendors can adapt to machine-readable technology.

Critics of the say-on-pay rule, including its co-author, say it has done little to slow the growth of awards for top U.S. executives.

Top asset managers still overwhelmingly support executive compensation, according to new data from researcher Insightia showing that in the 12 months ended June 30, three of the largest fund companies each supported around 95 salary management. % of the time, about the same as the previous period. .

Reporting by Katanga Johnson in Washington and Ross Kerber in Boston; Editing by Michelle Price, Stephen Coates and Bernadette Baum

Our Standards: Thomson Reuters Trust Principles.


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