Vanguard, the $5.2 tn asset manager, has announced that will grant full proxy voting privileges to its external managers, with the transitions expected to be complete by the end of the year.
‘We believe proxy voting is a great way to integrate investment stewardship responsibilities into investment management practices,’ says Vanguard chairman and CEO Tim Buckley in a statement. ‘Our external managers are well positioned to take on proxy voting responsibilities in a manner that supports shareholder value creation over the long term.’
The asset manager says that as of February 2019, the 25 external managers it uses collectively managed more than $471 bn in equity assets, across portions of 27 Vanguard funds in the US. The decision will impact 40 funds globally
At present, Vanguard’s investment stewardship team manages the proxy voting process for each fund – including those managed externally. As corporate governance standards have evolved, however, it says its fund boards ‘believe the time is right to transition proxy voting responsibilities to our external managers’. Vanguard’s investment stewardship team will continue to administer proxy votes and engage with companies on behalf of internally managed Vanguard funds.
Each external management firm will continue to follow its own proxy voting policies and guidelines, but Vanguard says it has ‘carefully selected managers whose principles and processes align with the objectives of the funds they manage’.
‘All of Vanguard’s external managers have proxy voting policies, guidelines and operations for investment strategies they manage for clients outside of Vanguard,’ explains Matthew Brancato, head of Vanguard’s portfolio review group, in the company statement. ‘Proxy voting is fundamental to their work [and] in addition to evaluating [each of them] on their investment strategies, Vanguard reviews their voting capabilities and is confident in their ability to discharge their voting responsibilities consistent with their fiduciary duty to the Vanguard funds.’
Proxy voting responsibilities for the relevant funds will be transitioned over the course of 2019 and Vanguard says that by the end of the year, a summary of each external manager’s proxy voting policy will be disclosed publicly.
The asset manager offers additional detail in a new investment stewardship commentary titled ‘What we do. How we do it. Why it matters’, where it stresses that nothing has changed when it comes to its philosophy on proxy voting, adding that this remains focused on four principles of governance: board composition, oversight of strategy and risk, executive compensation and governance structures.
‘We believe this move clarifies the roles and responsibilities of Vanguard’s investment stewardship team and those of our external subadvisers,’ states the asset manager. ‘As we have increasingly collaborated with the carefully chosen external active managers overseeing Vanguard’s active funds and as the governance ecosystem has evolved, it has become clear that integrating proxy voting and engagement activities with the manager’s investment strategy is a value-add for our fund investors.
‘The approaches may differ on questions of detail and emphasis, but our actively and passively managed funds share a similar goal: to invest in companies that generate consistent, long-term value for their shareholders.’