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


© Reuters. FILE PHOTO. U.S. Securities and Exchange Commission Chair Gary Gensler speaks before the Senate Banking, Housing and Urban Affairs Committee hearing about the SEC at Capitol Hill, Washington, U.S.A, September 14th, 2021. REUTERS/Evelyn Hocks


By Katanga Johnson and Ross Kerber

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.

An official from the Securities and Exchange Commission (SEC), spoke on condition of anonymity to tell Reuters that investors will be required to disclose more detail about how shares lending influences proxy voting and make certain reports machine-readable.

These changes, which were implemented partly under Dodd-Frank’s financial reforms in 2010, are intended to increase transparency at shareholder annual meetings.

The rule modifications would need to be approved Wednesday by the majority of five members of the commission. There will then be a period for public comments, which lasts 60 days.

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Among 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.

Dodd-Frank required shareholders to vote on compensation. These votes are about executive pay and have been focusing on the CEO’s pay during many annual corporate meetings over the last decade.

These votes and the Form N-PX disclosures big mutual funds firms filed in 2004 have already drawn scrutiny of the largest 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. According to proxy solicitors, while it may save investors money, this has affected the outcomes of corporate elections.

According to industry groups, if SEC’s proposal proves too expensive, these burdens will be passed onto fund shareholders. According to them, the SEC’s proposed rule change could be a failure if vendors are unable to adapt quickly enough 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.

According to Insightia, top asset managers continue to support executive pay. This is based on new data that shows three of the biggest fund companies supported pay management about 95% of all the time. It’s roughly the same percentage as in the previous period.

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