October 15, 2019 / 1:00 PM / a month ago

Pension and hedge funds push U.S. SEC to reconsider proxy adviser guidance

NEW YORK, Oct 15 (Reuters) - Some of the world’s biggest pension funds and a prominent hedge fund are urging the U.S. Securities and Exchange Commission (SEC) to reconsider recent guidance they say will raise costs, hurt investors and cut participation in corporate voting.

Florida’s state pension fund, the California Teachers Retirement System, hedge fund Elliott Management Corp, mutual fund firm Aberdeen Standard Investments and dozens of others are pushing back publicly for the first time since the SEC in August announced plans to put proxy advisers on a tighter leash.

“We are concerned that the SEC approach risks replacing the current, effective free-enterprise approach with a system that defers too much to incumbent management teams and boards of directors by diminishing investor oversight and accountability mechanisms,” the group wrote in a letter seen by Reuters that was sent to the SEC on Tuesday.

Proxy advisers including Institutional Shareholder Services Inc (ISS) and Glass Lewis & Co vote corporate ballots, called proxies, on behalf of investor clients and make recommendations on matters ranging from executive pay to climate change.

Now the SEC wants these groups to say more about how they reach their recommendations and how companies can react if they spot errors in them.

“We think there’s an attempt to bias proxy reporting to company management,” said Ken Bertsch, executive director of the Council of Institutional Investors which is spearheading the investors’ response. “The practical effect of all this will be to limit competition in the proxy advisory business,” Bertsch told Reuters.

CII and more than 50 investors signed the letter sent to the SEC.

The SEC laid out its proposals in August, handing a victory to corporations that have long lobbied the regulator to curb proxy advisers’ power.

Proxy advisers face guidance that may force them to give more information on how they reach their recommendations and possibly show them to companies before they are published, which investors are especially worried about.

Some corporations have complained about errors in the recommendations, but investors say the problem is overblown.

“Proxy advisors routinely issue updates to their reports to correct their factual content when merited,” the letter said.

Finally investors worry new rules could lead to higher costs if proxy advisers face additional legal fees. They may also have greater staffing and insurance costs that they would have to pass on to institutional investors and their retail clients. (Reporting by Jessica DiNapoli and Svea Herbst-Bayliss; Editing by Tom Brown)

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