Column: NYSE seeks to end closed-end fund meeting rule, opening divide with investors: Ross Kerber
07/08/2024 16:26
(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Ross Kerber
Aug 7 (Reuters) - Corporate annual meetings provide one
of the great rituals of business reporting, a rare chance to
watch executives and directors speak directly with investors.
But mutual fund shareholder meetings are much more obscure.
Most top funds only stage them every few years such as when they
need a bylaw tweak. Few investors bother to show up.
So initially I wasn't so excited when a colleague pointed
out a rule change the New York Stock Exchange put forward to
eliminate required annual meetings for closed-end funds. I
changed my mind when I saw the proposal generated pushback from
academics and investors who understand it as a bid to prop up
underperformers.
Unlike many well-known mutual funds like Fidelity's Magellan
FMAGX.N or the Vanguard 500, VOO.P closed-end funds issue a
fixed number of shares that can then be bought or sold on
exchanges. A funds' trading price can vary above or below its
net asset value (NAV).
A recent U.S. trade group report found closed-end funds
generally trade below their NAV due to factors like investors'
concerns for tax exposure. As of the end of last year
traditional closed-end funds held $249 billion, compared to $33
trillion in open-end mutual funds and ETFs.
NYSE, owned by Intercontinental Exchange, ICE.N says it has
the largest share of closed-end fund listings. The discounted
share prices have led to challenges from activists looking to
put their own directors in place to improve performance, notably
the efforts of hedge fund manager Boaz Weinstein's Saba Capital
Management against closed-end funds of BlackRock. BLK.N
Now the NYSE's efforts could change both sides'
calculations. In a July 3 notice the NYSE proposed to include
closed-end funds "among the categories of issuers that are
exempt" from the requirement to hold a shareholder meeting each
year. Trade group the Investment Company Institute supports the
idea, calling the meeting requirement superfluous and expensive.
Yet what could be seen as a routine and obscure rule
change proposal has Saba and others up in arms. The idea
"represents a destruction ... of the very rights shareholders
were told they had when they bought these funds" Saba wrote in a
comment letter.
The key issue for Saba is that doing away with the regular
meetings means investors would have to call a special meeting to
replace directors, leaving shareholders "powerless to effect
change," Saba's letter states.
Other groups including the Securities Industry and
Financial Markets Association also supported the rule change in
a comment letter, saying the current system gives a minority
investor too much power as the annual meetings "frequently have
limited retail investor participation" - a polite way of saying
mom-and-pop shareholders don't vote.
But that sort of activism is good for investors, said a
group of academic economists, by creating opportunities to sell
shares close to a fund's NAV and not at a discount.
The proposal "can be viewed as akin to a request by NYSE to
grant all listed CEFs (closed-end funds) a takeover defense"
that would be harmful to investors, wrote the group led by
Wharton School Professor Daniel Taylor.
NYSE's proposal needs approval from the U.S. Securities and
Exchange Commission, as does a similar proposal from Cboe BZX
Exchange. CBOE.Z An SEC representative declined to comment.
(This column is part of the Reuters Sustainable Finance
newsletter. To receive the newsletter every Wednesday you can
sign up here.)
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
NYSE dominates closed-end fund market https://reut.rs/3WCyA5v
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Ross Kerber; Editing by David Gregorio)
((ross.kerber@thomsonreuters.com))