Sullivan & Cromwell Discusses SEC Proposal to Enhance Proxy Voting Disclosure by Investment Funds

By Donald R. Crawshaw, Eric M. Diamond, Joseph A. Hearn, Sarah P. Payne and Marc Trevino October 11, 2021 by benzonenshayn

On September 29, 2021, the SEC issued a proposed rulemaking to enhance the information mutual funds, exchange-traded funds and other registered management investment companies (“funds”) report annually about their proxy votes. The proposal also would require so-called “institutional investment managers” …

Common Ownership: Solutions in Search of a Problem

By Keith Klovers and Douglas H. Ginsburg August 25, 2021 by renholding

Mutual funds and exchange-traded funds are the cornerstone of many Americans’ investment and retirement plans. (For simplicity, we refer to all these investments as “mutual funds.”) Collectively, investment companies such as BlackRock, Fidelity, State Street, and Vanguard hold more than …

Moving Beyond Mutual Funds

By Shawn Bayern August 13, 2021 by renholding

As has become widely known in the past few years, the mutual-fund industry is more concentrated than ever, especially because of the growing use of index funds. Whether this is a problem and how to respond have been the topics …

Hiding in Plain Sight: The Global Implications of Manager Disclosure

By Michael Young, Richard B. Evans, Miguel A. Ferreira and Pedro Matos July 8, 2021 by renholding

Delegated asset management, and mutual funds in particular, have become the investment vehicle of choice for retail investors in capital markets worldwide. At the end of 2020, open-end mutual funds had a total of $63 trillion in assets under management …

“Public” Mutual Funds

By Jeff Schwartz April 29, 2021 by renholding

The Big 3 mutual-fund managers (BlackRock, State Street, and Vanguard) have amassed incredibly large public-company holdings through the array of mutual funds they oversee. As a result, they now play a pivotal role in corporate governance in many of the …

Passive Exit

By Joshua Mitts January 6, 2021 by renholding

Economist Albert O. Hirschman (1970) classically set out the two alternatives facing dissatisfied members of an organization: They can voice displeasure or exit for greener pastures. Hirschman’s model has long explained the tradeoff facing shareholders of a poorly governed firm: …

Pandemic Disclosures: Covid-19 as a “Current Market Condition” for Mutual Funds

By Anne M. Tucker, Yusen Xia and Susan Navarro Smelcer January 5, 2021 by renholding

What constitutes a “current market condition” that mutual funds are required by SEC regulations to disclose? Current market condition risks arise because of changing market conditions that can affect investment performance. For some U.S.-registered funds, Covid-19 is prompting …

SEC Chair Clayton Speaks on Regulations for Funds’ Use of Derivatives

By Jay Clayton October 29, 2020 by renholding

Today [October 28], we are considering a new rule to provide an updated and comprehensive regulatory framework for the use of derivatives by registered investment funds, including mutual funds and exchange traded funds (ETFs). I have spoken before on the

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The Politics of Institutional Shareholder Voting: Transparency Before Reform

By Isabel Verkes August 13, 2020 by renholding

On July 22, the SEC finalized a sweeping rule change to enhance the transparency around the role of proxy advisers. This follows an earlier proposal to reform the process for including shareholder proposals in a company’s proxy statement.^[1] These …

The Competitive Landscape of the Proxy Advice Market

By Chong Shu June 25, 2020 by renholding

Despite long-standing efforts to understand the proxy advice market, there is no way to identify the firms that supply specific investors with proxy advice, making claims about market shares conjectural at best. Nevertheless, it is widely believed that ISS and …

Shareholder Satisfaction with Overlapping Directors

By Rachel Li and Miriam Schwartz-Ziv March 11, 2020 by renholding

We investigate whether mutual fund shareholders are particularly supportive of “overlapping directors,” individuals who serve simultaneously on at least one corporate board and at least one mutual fund board. Overlapping directors may have a conflict of interest because of their …

Toward a Mission Statement for Mutual Funds in Shareholder Litigation

By Sean J. Griffith and Dorothy S. Lund August 1, 2019 by renholding

Mutual funds own approximately 30 percent of the U.S. equity market, and the Big Three fund families – Blackrock, Vanguard, and State Street – are the largest blockholders in the vast majority of large, publicly traded companies. This has made …

What Do Mutual Fund Investors Really Care About?

By Itzhak Ben-David, Jiacui Li, Andrea Rossi and Yang Song April 5, 2019 by renholding

Do investors behave rationally? Many researchers examine actively managed mutual funds to answer this question. The advantage of doing so setting is that we can observe the past performance of fund managers as well as the capital allocation decisions of …

Skadden Discusses BlackRock Win in One of Largest Mutual Fund Cases Ever

By James R. Carroll, Eben P. Colby, Scott D. Musoff, Christopher A. Lisy and Marley Ann Brumme March 1, 2019 by renholding

Following an eight-day bench trial, Judge Freda L. Wolfson of the U.S. District Court for the District of New Jersey ruled in favor of certain subsidiaries of BlackRock, Inc. on $1.55 billion in claims brought under Section 36(b) of the …

Common Ownership Has Not Yet Ushered in an Era of Anticompetitive Behavior

By Andrew Koch, Marios A. Panayides and Shawn Thomas January 24, 2019 by renholding

As mutual funds have become popular with individual investors, the institutions that manage these funds have grown dramatically. Along with the benefit of offering individual investors inexpensive portfolio diversification and engagement in corporate governance, there is mounting concern that the …

The Role of Public Pension Funds in Governance

By Ying Duan, Yawen Jiao and Kunsun Tam October 24, 2018 by renholding

Public pension funds have great influence over corporate governance because of the size and nature of their portfolios: They manage more than $3 trillion in assets and often invest in a large number of companies. Besides largely unobservable private negotiations, …

The Subversion of Shareholder Democracy and the Rise of Hedge-Fund Activism

By Jang-Sup Shin September 6, 2018 by renholding

Hedge fund activists are technically just minority shareholders, yet they exert enormous influence, often forcing companies to undertake fundamental restructuring and substantially increase stock buybacks and dividends. For instance, Third Point Management and Trian Fund Management, holding only 2 percent …

Corporate Governance Consequences of Passive Investing

By Giovanni Strampelli July 19, 2018 by renholding

The popularity of index funds, which automatically track an index of stocks, is continuing to grow in the U.S, and, albeit less intensely, in the EU. Due to the high concentration of the index funds industry, the exponential rise of …

New Data Shed Light on Mutual Fund Time Horizons

By Anne M. Tucker July 2, 2018 by renholding

Short-termism is a loaded phrase in debates over investment time horizons, often used to criticize investors and corporate managers deemed overly focused on near-term gains at the expense of long-term value. One argument is that U.S. mutual funds, as significant …

The Economic Impact of Mutual Fund Investor Behavior

By Geoffrey C. Friesen and Viet Nguyen June 8, 2018 by renholding

While the behavior of mutual fund investors is an active field of study within finance, we do not know very much about how these behaviors have changed over time. The simple reason for this is that most studies in this …

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