The issue of proxy advisory reform is at the center of debate now with the SEC entering into a formal rulemaking process to roll back some of these firm’s unchecked powers.
These firms have been known to make recommendations misconstruing or misinterpreting data, they have been allowed to operate and make recommendations with clear conflicts of interest, and most importantly, they refuse to act as fiduciaries, instead making recommendations to advance their clear political and social goals instead of recommendations that will produce the greatest returns for investors.
It’s unfortunate that the head of one of the most underfunded and politically/socially active pension funds (CalSTRS) is coming to these firm’s defense. In a recent article, Chris Ailman, CIO of CalSTRS, seemed to attack the SEC’s intent of looking out for the average pensioner or retail investor, in favor of the political and social-driven investing that CalSTRS has been known to support.
According to the California Legislative Analyst’s Office, CalSTRS has an unfunded liability of $107.3 billion, which means the $242 billion pension fund is only 57 percent funded. What are California teachers – those who often take less pay during their working years for the assurance of a strong retirement – going to do when the secure retirement they were promised isn’t able to pay the promises that were made during contract negotiations?
This is proof that pension fund managers, particularly those that are not performing well, need to focus less on politics and more on producing solid returns for their investors.
What’s most unfortunate is that CalSTRS’ management – by voting automatically with proxy advisory firms’ recommendations – is silencing the voice of everyday pensioners who are the main beneficiaries of the pension fund. Reforming this automatic voting status will create greater transparency for all CalSTRS pensioners.