The week in investor relations: Hopes for Fed pivot fade, Conservatives mastering the art of the proxy ballot and fast-food industry loses ‘super-sized’ battle
– The Wall Street Journal (paywall) said hopes for a Fed pivot have faded, ‘sapping stocks’ momentum’. Further interest-rate increases threaten to put more pressure on expensive parts of the stock market, it said, adding that US stocks have now fallen in four of the past five sessions and ‘chipped away at the late-summer rally that had helped them bounce off their lows for the year’.
– ‘Conservatives are mastering the art of the proxy ballot to fight ESG,’ declared Bloomberg Businessweek (paywall), which noted how two activists have been ‘remarkably successful’ in getting anti-ESG measures before shareholders. This year, 272 ESG measures made it onto company proxies, up from 158 in 2021, said the publication, driven by ‘fund management giants’.
Now conservative groups are getting into the game, led by two little-known strategists who have mastered the art of the proxy ballot. Coincidentally, the SEC is helping to pave their way with important rule changes, added Bloomberg. ‘As corporations are making more and more decisions that conservatives feel cater to the left, [conservatives are] going to not just make more noise about this but [also] be more organized,’ Doug Heye, a Republican strategist and former communications director of the Republican National Committee, told the news outlet.
– ‘Fast-food chains [have lost a] super-sized lobbying battle,’ said The New York Times (paywall), reporting the news that California’s State Senate passed a bill to create a council assigned with setting wages and working conditions for the fast-food industry. The decision follows ‘furious lobbying’ from both unions and the industry, said the paper. The bill would set up a 10-member council, including representatives for workers and employers and could set industry-wide minimum wages at up to $22 an hour next year – far exceeding the current statewide minimum hourly wage of $15.50.
The paper quoted Kate Andrias, a labor law expert at Columbia University, as saying: ‘It’s one of the most significant pieces of state employment legislation that’s passed in a long time.’ The formation of the council moves California closer to sectoral bargaining, in which workers negotiate with employers over pay and working conditions on an industry basis, instead of company by company.
– ‘US public pension plans are some of the ESG movement’s biggest supporters,’ reported Institutional Investor. ‘Divisions along political party lines might change that.’ Analysis from Morningstar looking at the most recently available 2021 public fund proxy votes on 72 key ESG shareholder resolutions found that US public pension funds in both red and blue states showed higher rates of support for almost all of the measures, compared with general shareholders and ESG-focused funds.
The analysis included 29 public pension plans – including the nation’s largest plans like CalPERS, New York State Common Retirement Fund and the State of Wisconsin Investment Board – that directly voted their proxies and that collectively represent $3.4 tn in assets under management.
‘We came in with the hypothesis that public pensions would be supportive,’ Janet Yang Rohr, director for multi-asset and alternatives research at Morningstar, told the publication. ‘When you look at other things they’ve done – they were early signers of the UN [Principles for Responsible Investment] – and when you look at general news stories, you see that they’re leading the net-zero portfolio movement.’
– Bloomberg (paywall) warned that asset managers that have recently reclassified hundreds of ESG funds should expect to have to explain themselves to their regulators and investors. The warning follows the recent redesignation of about 700 funds in the EU to a category known as Article 8, which is seen as offering some ESG attributes. The news outlet describes the fund class as having ‘mushroomed’ since its introduction in March last year: it now makes up roughly half the total domiciled in the EU, or $3.8 tn, according to analyst estimates from Morningstar.
Asset managers want Article 8 funds on their shelves in large part ‘because they feel there’s pressure from distribution channels, which there absolutely still is,’ Bloomberg quoted Ciara O’Leary, a partner at law firm Dechert, which advises the fund industry, as saying. But changing the classification of a fund that’s been on the market for a year opens the door to ‘queries from the regulators’ wanting to know the reasons and whether investor approval is needed.
– Most active fund managers should leave the industry as they fail to deliver returns for UK retail investors, Stephen Yiu, manager of Blue Whale, the investment fund founded by billionaire Peter Hargreaves, told the Financial Times (paywall). Yiu, who co-founded the fund with Hargreaves, said only ‘high conviction’ active managers who back a small portfolio of carefully chosen stocks can justify their existence in the face of fierce competition from passive alternatives. He said novice do-it-yourself investors are well served by passive funds that track the market, and that more experienced retail shareholders can aim to do better than the market by selecting high-conviction funds.
‘What I would like to see is lots of people in passive, lots of high-conviction managers and get rid of everything in between. I think that would be very healthy,’ he told the paper.
– CNBC reported that South Korea’s financial regulator launched an inspection into the short-selling of shares by major brokerages and branches of foreign firms as part of efforts to tighten supervision on such trading. The country’s Financial Supervisory Service (FSS) had begun inspection of short-selling transactions by the Seoul branch of Morgan Stanley and was expected to widen the probe into other outlets, an FSS official said this week.
The official said the inspection was not based on any specific suspicion or allegation of wrongdoing and was not targeting any specific company but was part of efforts to strengthen the monitoring of short-selling, which is the sale of borrowed shares, benefiting the seller if prices fall. ‘It’s not possible for us to look into all the companies, so the inspection will most likely be focused on big players,’ the official said, adding that no timeframe for the work had been set.
– Tencent is reining in its ‘once aggressive’ pursuit of Chinese internet companies, ‘sending a chill through an industry already reeling from a regulatory onslaught,’ reported the FT. The Shenzhen-based internet giant and owner of the popular messaging app WeChat has reportedly outlined a strategy internally to divest some Rmb100 bn ($14.5 bn) of its $88 bn listed equity portfolio, said the paper, citing people familiar with the matter. The news is part of a broader shift by Tencent to reduce costs as economic growth slows amid a property crisis and zero-Covid restrictions in China, added the FT, which described the pivot as representing ‘a tidal change for start-ups in the internet and consumer sectors raised on cheap capital from deep-pocketed investors’.