A Catch 22 for Asset Managers
Written by Jasmin Sethi on behalf of SCA for the Harvard Law School Forum for Corporate Governance.
Asset managers have been caught in a difficult spot for several years. Some, including me, have pushed them to use their growing voting power to benefit social impact causes. Other experts have decried managers’ power and blamed them for anticompetitive outcomes and even increasing inequality.
The big three—BlackRock, State Street, and Vanguard—are victims of their own size. As they have increased their assets under management, they have also increased their voting power as typically they vote the shares for the money they manage (though not always for separate accounts but they do for mutual funds and exchange-traded fund (ETF) shares. With voting power, some would argue, comes responsibility. Those who argue for greater responsibility want asset managers to be more active on issues relating to climate change, gender diversity, and social issues, like equal pay. Indeed, State Street was recently criticized because its gender diversity index, traded as SHE, did not actually vote in favor of gender-based shareholder resolutions. In this particular case, competition amongst asset managers on values was demonstrated, with Pax World Funds having been found to vote most often in favor of gender resolutions on its gender funds. Moreover, this values-oriented approach tended to lead to better returns: funds classified by Morningstar as ESG/sustainable performed better than average in their category.
