You know Your Survival Guy has some questions about Vanguard. You can read about them in my SPECIAL REPORT: The Trouble with BlackRo… er… ummm, Vanguard, but it turns out the U.S. government may have some concerns with Vanguard too. You see, Vanguard, along with BlackRock and State Street, have become so large that their holdings of many U.S. publicly traded companies have exceeded the 10% limit normally placed on owners before additional responsibilities are incurred. For years, exceptions have been made for the big money managers, but pressure is mounting for enforcement. Steve Johnson, Will Schmitt, and Brooke Masters report in the Financial Times:
Vanguard has come under fire, along with the other two passive investment giants BlackRock and State Street Global Advisors, for its sheer size and voting record on climate and social issues.
In January, passively managed US funds passed their actively managed counterparts in assets under management for the first time.
Progressive activists have long sounded alarms about the power of the large passive investment complexes, which collectively own nearly 25 per cent of many US companies.
In the past three years, they have been joined by conservatives who complain that the fund companies are using their shareholdings to push liberal causes that they dub “woke capitalism”.
Historically, regulators have allowed investment funds to exceed the 10 per cent ownership caps on bank and utility shares that normally trigger additional responsibilities, as long as they do not seek a management role.
But the Federal Deposit Insurance Corporation is considering imposing tighter conditions on those waivers, while Republican state attorneys-general have pressured the Federal Energy Regulatory Commission to review Vanguard’s ability to hold large chunks of publicly traded utilities.
Vanguard’s latest disclosures, filed last week with the US Securities and Exchange Commission, warn that the Pennsylvania money manager may not be always able to breach the ownership maximums in the future.
“It is not always possible to secure relief, and there is an increasing amount of uncertainty around how much ownership limitations relief regulators will grant to asset managers like Vanguard,” the asset manager said.
Without regulatory relief, Vanguard could be forced to sell off securities and instead buy indirect exposure to affected holdings using derivatives like total return swaps or investing in subsidiaries.
The asset manager told the Financial Times that the new risk statements “make clear the potential negative consequences a loss of regulatory relief could have on fund expenses and performance as well as the potential tax consequences for investors”.
“We continue to work with policymakers to answer questions, address concerns and minimise these risks,” Vanguard said.
A trade association representing asset managers, the Investment Company Institute, reiterated its concerns that heavy-handed regulation could hamper returns for millions of US investors.
“Given the stakes, we encourage regulators to carefully consider these impacts and avoid making changes that will impede funds’ ability to help Americans invest for a secure financial future,” the ICI said.
Action Line: “Regulatory relief” is big corporate language for “rules for thee but not for me.” When you want to talk about your investment portfolio, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
P.S. Don’t miss my SPECIAL CONFESSION: Why I’m Being Hard on Vanguard, or these other posts I’ve written on what’s going on at Vanguard:
- Concerns with Vanguard? How to Move to Fidelity
- BLACKROCK: The Takeover of Vanguard from Within?
- Who Is Vanguard’s New CEO Salim Ramji?
- Why Did Former Vanguard CEO Tim Buckley Leave?
- Vanguard’s Payphone Service
Originally posted on Your Survival Guy.
