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U.S. private fund managers: new proxy voting reporting requirements

18 May 2023 | 4 minute read

On October 18, 2022, the SEC issued a final rule and amendments meant to enhance the information that registered funds currently report about their proxy votes, as well as make that information easier to analyze.

Specifically, the SEC will adopt amendments to Form N-PX under the Investment Company Act of 1940, as well as rule and form amendments under the Securities Exchange Act of 1934. The changes, which will be made effective July 1, 2024, will expand proxy voting information that registered funds must report, as well as require managers to report on voted proxies relating to the subject of executive compensation.

Some of the most important aspects of the ruling include the following:

Scope of funds’ Form N-PX reporting obligations

Funds currently must report on Form N-PX any information for every matter relating to proxy voting. Prior to the ruling, the requirement applied to each matter relating to a portfolio security considered at any shareholder meeting held during the reporting period, and with respect to which the fund was entitled to vote.

Under the new amendment, for the purposes of Form N-PX, a fund would now be entitled to vote on a matter if its portfolio securities are on loan as of the record date for the meeting. The idea behind this amendment is to properly reflect any effect of securities lending activities on proxy voting, as the reporting fund could recall and vote these loaned securities.

Scope of managers’ Form N-PX reporting obligations

The SEC ruling adopts Form N-PX under the Exchange Act, and, consistent with the reporting obligation of the Exchange Act’s Section 14A(d), requires managers to use Form N-PX to report its “say-on-pay” votes. This includes votes on whether to approve executive compensation, the frequency of executive compensation approval votes, and votes to approve “golden parachute” compensation in connection with a merger or acquisition.

Identification of proxy voting matters

The ruling will require reporting persons to use the same language on the proxy form to identify the matter on Form N-PX, and report the proxy voting matters in the same order as they’re presented on the issuer’s proxy form. That includes identifying each director separately in the same order, even if the election of directors is presented as a single matter on the proxy form.

The rule was adopted with two modifications:

  1. The requirements will only apply to proxy votes if a proxy form in connection with a matter is subject to Rule 14a-4 under the Exchange Act, which requires “proxy cards” to clearly and impartially identify each voting matter
  2. In all other cases, reporting persons will be subject to the current requirement to provide a “brief identification of the matter voted on,” but abbreviations will be limited only to commonly understood terms, which should make it easier for investors to understand and locate identical voting matters on different Form N-PX reports by different reporting persons

Identification of proxy voting categories

The new rules also require reporting persons to identify the subject matter of each reported proxy voting item as one of several standardized categories covering matters on which funds frequently vote. The final ruling is different from the proposal in that it eliminated subcategories and instead relies on a more streamlined set of categories, including:

  • Capital structure – e.g. security issuance, stock split, reverse stock split, dividend, buyback, tracking stock, adjustment to par value, authorization of additional stock
  • Diversity, equity and inclusion (DE&I) – e.g. board diversity, pay gap
  • Environment or climate – e.g. greenhouse gas emissions, transition planning or reporting, biodiversity or ecosystem risk, chemical footprint, renewable energy or energy efficiency, water issues, waste or pollution, deforestation or land use, say-on-climate, environmental justice
  • Investment company matters – e.g. new or changed investment management agreement, assignment of investment management agreement, business development company approval of restricted securities or asset coverage ratio change, closed-end investment company issuance of shares below net asset value

The full list of categories in the amended Form N-PX can be found in pages 168-169 of the ruling.

Disclosure of number of shares voted or instructed to be voted

Amended Form N-PX will require reporting persons to disclose the number of shares voted (or instructed to be voted) and how they were voted, as reflected in their records at the time they filed a report on Form N-PX. If the number of votes has not been confirmed, Form N-PX instead may reflect the number of shares instructed to be cast on the date of the vote. Reporting persons also must disclose the number of shares voted (or instructed to be voted) if votes were cast in multiple manners.

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