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‘Ignorant’ asset managers attract customers by casting votes without a business case
Academic research shows that the “big three” — BlackRock, Vanguard and State Street Global Advisors (SSGA) — are largely unaware of the companies their index funds hold.
an article titled Opportunism in Shareholder Vote and Involvement of ‘Big Three’ Investment Advisors in Index Fundslarge asset managers either follow board recommendations or implement “millennial marketing strategies” when engaging to appease activist shareholders and minimize regulatory risk. claims to be
Bernard Scharfman, author of RealClearFoundation, argues that for the issuers of the largest index funds, which hold trillions of dollars in assets from tens of millions of customers, the different interests of each end investor are represented. pointed out that it is difficult
He argued that in an industry with “very low management fees,” the “Big Three” were unable to expand their control over the thousands of securities held by their products, thus acting as unified voters. added.
“The ‘Big Three’ aren’t paid to get information, they just vote and get involved on their behalf, doing all they can for the benefit of their beneficial investors,” Scharfman said. said Mr.
Without being informed, he argued that the only way asset managers could protect their “portfolio superiority” was to implement a policy of deferring board voting recommendations. Saw and the National Bureau of Economic Research.
However, Scharfman said large issuers may vote “opportunistically” and the outcome being favored may not improve returns for the company’s stock.
“The ‘Big Three’ are generally ignorant, so they cannot add value to the stock market through ignorant voting or engagement,” he continued. “Instead, they are focused on increasing their market share, which is where they get the most ‘bang for the buck.
“The successful implementation of marketing strategies, as reflected in the increase in market share of the U.S. stock market, which is currently valued at approximately $50 trillion, has helped the ‘Big 3’ generate trillions of dollars in assets under management (AUM). Provides opportunities for potential gains. without being informed. “
One way asset managers do this is by appealing to a large group of prospective or long-term clients, such as millennial investors. In this case, the value of portfolio shares becomes a secondary concern for increasing the issuer’s market share.
Although in a more pessimistic tone, these findings are consistent with those of the recent NBER paper. Impact of indexing growth on corporate governancelarge index fund issuers have similar incentives to become involved as active managers.
In fact, a 1% increase in the value of a company’s typical “Big 3” position would increase annual administrative costs by an average of $133,000, the paper said.
Given that these engagement activities typically pursue non-fiduciary objectives, Scharfman warned that they “only lead to a reduction in investor wealth.”
While noting the importance of asset managers fulfilling their fiduciary responsibilities, he also explored the voting preferences of investors, such as voting as recommended by the issuer, voting with company management, or abstaining entirely. He concluded by endorsing an initiative to enable the
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