BlackRock announced it will increase the range of funds eligible for its Voting Choice programme in the UK and expand the scheme to Canadian and Irish pooled funds after investors with $120bn assets under management (AUM) expressed their voting preferences in just five months.
The initiative to give investors a choice in how their votes are cast was launched last October and covered certain index strategies invested in by institutional clients, pension funds, insurance companies and corporations in the US and UK.
Since then, the total sum voting through their own preferences hit $530bn – or a quarter of all eligible assets – including legacy clients that have always controlled their voting.
It takes the assets eligible under Voting Choice to 47% – $2.3trn – of its $4.9trn index equity assets.
BlackRock’s decision to extend its Voting Choice initiative is also sagely timed, given a Senate hearing is being held this week to discuss the voting power of index funds. Within this, Alaska senator Dan Sullivan has proposed a bill to ban index fund managers from voting on shareholder proposals and director elections without the express permission of large institutional clients.
Following the changes, 95% of the firm’s institutional index equity funds are eligible, including some funds in Canada and Ireland, 100% of its US pension plans and 80% of its index equity assets in Europe and the UK – excluding ETFs.
BlackRock has also begun offering “additional shareholder voting options” to some individual investors, endowments and foundations in the US – and is working on a pilot scheme to allow all investors in UK mutual funds – including individuals – to exercise choice in how their votes are cast.
Salim Ramji, global head of iShares and index investments at BlackRock, said: “Following years of work on technology and regulatory barriers, nearly half of our clients’ index equity assets – including pension funds representing more than 60 million people – have easy and efficient options to vote their preferences.
“While BlackRock’s Voting Choice program is an industry first, we see it as just a beginning.”
Despite the changes, some may remain sceptical about how impactful Voting Choice will be, given investors often use index funds for the express purpose of being low-cost and passive – and in turn BlackRock may be giving clients options they will not use.
Also, while BlackRock submits Form N-PX filings to disclose its voting activity to the Securities and Exchange Commission (SEC), asset owners are only obliged to disclose on “say of pay” votes and not those on company director elections, shareholder proposals or other proxy votes.
Given BlackRock will be unlikely to surrender information on how its clients will vote, this could result in the large block of votes linked to its funds being cast in a more opaque way.
Douglas Chia, founder and president of Soundboard Governance LLC, also questioned what impact Voting Choice will have on the firm’s securities lending business, as passing shares over to a borrower means temporarily surrendering the right to proxy voting, dividends and other distributions.
As BlackRock extends its clients’ power to instruct it on how to cast votes, Chia questioned whether this could mean it has to recall larger portions of shares as larger institutional clients choose to be more hands-on with their voting.
Despite these considerations, many believe democratising voting is a natural next step for passive funds as more questions are being asked about their scale and growing influence.
The next step is waiting to see if other large asset managers – State Street Global Advisors and Vanguard – follow BlackRock’s lead and whether giving investors direct voting powers can allay concerns over the growing power of passive.
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