Top fund firms stay conservative in support for activists: report

[November 06, 2015]  By Michael Flaherty and Ross Kerber

NEW YORK/BOSTON (Reuters) - Three top U.S. asset managers shied away from supporting dissident directors in recent proxy contests, according to voting data, showing how corporate management teams can still depend on key players in the fund industry for backing in the face of an activist fight.

The data, dating back to 2013 and compiled by financial services group Houlihan Lokey, showed that since 2013, funds sponsored by BlackRock Inc, Vanguard Group Inc and State Street Corp all voted for just a minority of the 229 board seats sought by directors aligned with dissident shareholders.

That was a low count considering that dissident efforts - often led by activist hedge funds - won 126 of the seats, or more than half of the contests. Funds sponsored by BlackRock supported 83 of the nominees, followed by funds sponsored by State Street, which supported 62 of them, and Vanguard, which backed just 29 directors.

The findings of the Houlihan Lokey report from these funds run counter to the hopes of activist investors that the fund industry will come around to supporting their attempts to remake corporate boardrooms.[http://reut.rs/1kbyTkm]
 

Despite the growing acceptance of activism among institutional investors, voting against the management teams of large companies where money managers hold big positions remains a difficult choice, potentially because it could risk the fund firms' contracts to manage company 401(k) money.

"They've demonstrated that they're somewhat more conservative than the broader investment community," said Geoffrey Sorbello, senior vice president at Houlihan Lokey. "They have large positions, they're very influential, and yet their voting record is often inconsistent with the eventual outcome of these situations."

The voting tallies exclude cases where mutual funds withheld support from management director candidates, which could in practice support dissident efforts.

Also looming over the Houlihan Lokey data is the trend of faster settlements between companies and activists. In many cases, activist advisors say, the two sides settle because large institutional investors indicate to management that they are inclined to side with the activists.

Vanguard Fund Treasurer Glenn Booraem, who oversees proxy voting, made a similar point. "Increasingly, activists and companies alike are engaging with large institutional investors to gain support for their views and listen to their perspectives," Booraem said.

Representatives for BlackRock and State Street Global Advisors declined to comment.

The companies run huge passive funds required to own shares, and say they consider their proxy votes as long-term shareholders.

(Editing by Chizu Nomiyama)

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