Senate Banking Committee Receives Testimony on INDEX Act
The Senate Banking Committee held a hearing to examine the Investor Democracy is Expected (INDEX) Act (S. 4241) which would require investment advisers for passively managed funds to arrange for pass-through voting of proxies for certain securities. The conversation focused on the impact the largest three passive fund managers have on the proxy voting process. Republicans, including the sponsor of the legislation Senator Dan Sullivan (R-AK), have concerns arising from the large proportion of shares held by Wall Street’s largest investment advisers and believe they are using their voting power to further their own interests rather than the interests of their investors.
Democrats on the Committee argued the implementation of the legislation would be costly and logistically difficult because there are multiple layers when tracing who owns fund shares. Former SEC General Counsel and Director of the Division of Corporate Finance John Coates noted the logistical and costly impact but also noted that the safe harbor provision (allowing advisers to decline to vote their shares) would create an issue of unpredictability in the proxy process and funnel more power to proxy advisory firms. Coates added that the goal of the INDEX Act is worthy, the impact of consolidation in the fund space is important to monitor, but argued this bill has many consequences if enacted as drafted.
Click here to read the Forum’s prior blog post on the INDEX Act from May 31, 2022.