Written by Will Goodwin, co-founder, Tumelo.
Pass-through voting is helpful for investors with a specific stewardship strategy that they want to execute across all their underlying investments.
Institutional investors form their own investment strategies. Increasingly, and particularly for sophisticated or values-driven investors, this encompasses a carefully considered stewardship strategy.
Institutional investors execute their investment strategy by selecting a range of fund managers, who they use to build a portfolio of shares and funds. Often, their portfolios include a range of pooled funds, each with a unique investment strategy. This could focus on a particular geography, industry, or a set of environmental, social and governance (ESG) criteria.
A unique stewardship strategy will form part of each investment strategy. This stewardship strategy can lead to a unique selling point for generating alpha, and often the fund manager is selected with this in mind. However, it can also cause problems for the investor. If invested in multiple funds, discrepancies in voting activity across them can occur. Not only that, but the fund manager must vote on behalf of all the investors in the fund, making it impossible to provide a tailored solution for each.
Using pass-through voting to dissociate the stewardship practices of a fund from the stock selection/capital allocation strategy is advantageous. Investors can still get exposure to the companies they want while being able to maintain control over the stewardship of these companies. Historically, the sector has used segregated mandates; however, the additional fees and administrative costs make this an unattractive offering for all but the largest investors.
In our white paper on pass-through voting, we consider different investor types and how pass-through voting delivers a better solution for them to meet their investment objectives. Download your free copy here.