FONTAINEBLEAU, France, SINGAPORE and SAN
FRANCISCO, July 11, 2024
/PRNewswire/ -- As the US steels itself for the election in
November, the possibility of a political shift in the White House
seems high. Yet a new study suggests the outcome may also lead to
very different voting behaviour among the top US mutual funds as
they look to switch allegiance and maintain their political
influence.
This is according to new research by Massimo Massa, Professor of Finance
and The Rothschild Chaired Professor of Banking at
INSEAD, and his co-author Lei Zhang, Associate
Professor of Finance at City University of Hong Kong, who analyzed the behaviour of US mutual funds
between 2004 and 2021.
They found that voting patterns shifted significantly depending
on the political party in power when it came to more political
shareholder proposals. In fact, asset managers were 30.33% more
likely to support stricter environmental and social proposals when
Democrats held power compared to only 17.25% when Republicans were
in control.
This behaviour disregarded recommendations from proxy advisors,
who advise based on best financial outcomes for shareholders.
Interestingly, it also seemed independent of individual fund
manager beliefs. Instead, the votes appeared calculated to maximize
political capital for the fund families.
The study also found that the top ten biggest mutual fund groups
displayed a greater tendency to align their votes with the
political majority compared to smaller funds. This suggests their
size and influence translate into greater lobbying power, allowing
them to further tailor their behaviour to the current political
climate.
The financial markets wield immense power, and a significant
portion of that power rests with the biggest mutual fund companies.
BlackRock, State Street, and Vanguard, the top three asset
management companies, collectively held 23% of the S&P 500
firms in 2021. This gives them an outsized role in the governance
of these companies.
Large mutual funds, like BlackRock with its staggering
$10 trillion in managed assets,
attract significant scrutiny from regulators like the SEC and FTC.
These regulatory bodies, influenced by the political party in
power, have the authority to tighten or loosen regulations
impacting the fund industry. It is perhaps unsurprising that mutual
funds may strive to appear politically aligned with the current
administration.
The authors argue that the findings of this study raise serious
concerns about the priorities of major mutual funds. The potential
for political influence to outweigh shareholder value demands a
closer look at regulations and a push for greater transparency.
Ultimately, ensuring that these financial giants prioritize the
interests of their investors requires a commitment to good
governance and responsible stewardship.
For any queries, please reach out to news@insead.edu.
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SOURCE INSEAD