New U.S. SEC rules to call on hedge funds, endowments to disclose votes

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WASHINGTON/BOSTON (Reuters) – The top U.S. securities regulator on Wednesday will propose requiring large hedge funds and endowments to disclose how they vote on executive pay, bringing this clutch of influential investors in line with other top funds that have made their pay votes public for a decade.

The changes proposed by the Securities and Exchange Commission (SEC) will also include mandates for investors to provide more details about how share lending affects proxy voting and to make certain reports machine-readable, an SEC official told Reuters, speaking on condition of anonymity.

Together the changes from the Democratic-led agency are meant to bring more transparency to shareholder annual meetings, partly by implementing rules mandated by the Dodd-Frank financial reforms of 2010.

If approved by a majority of the five-member commission on Wednesday, the rule changes would be subject to a 60-day public comment period before further action.

Among S&P 500 company CEOs average total pay rose 52% to $12.18 million in 2020 from $8 million a decade earlier, according to compensation consultant Farient Advisors.

Among other things Dodd-Frank mandated shareholders get the chance to cast so-called “say-on-pay” advisory votes on executive compensation, which have put a focus on CEO pay at many corporate annual meetings for the past decade.

The votes, combined with the disclosures that big mutual fund firms have filed since 2004 via Form N-PX, had already brought scrutiny to the biggest asset managers.

But SEC Democratic Commissioner Allison Lee told an industry audience in March that the Form N-PX disclosures are too unwieldy to show retail investors how their money is voted and because they currently are not filed by certain investment firms.

Separately, some managers have given up their rights to vote in exchange for fees when they lend out shares to short-sellers. While this can cut costs for investors, it has also changed the outcome of corporate elections, according to proxy solicitors.

Industry groups say that if the SEC’s proposals prove too costly, those burdens would be passed on to fund shareholders. They also said the success of the SEC’s rule change may depend on how quickly vendors can adapt to machine-readable technology.

Critics of the say-on-pay rule, including its co-author, say it did little to slow the growth of rewards for top U.S. executives.

Top asset managers still overwhelmingly back executive pay, according to new data from researcher Insightia showing that during the 12 months ended June 30 three of the largest fund firms each supported management on pay about 95% of the time, roughly the same as the prior period.