CDC IXIS Asset Management Advisers, L.P.
CDC IXIS Asset Management Services, Inc.
399 Boylston Street
Boston, Massachusetts 02116
VIA E-Mail: email@example.com
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
Re: File No. S7-36-02
Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies
Release Nos. 34-46518, IC-25739
Dear Mr. Katz:
This comment letter responds to the recent proposal by the Securities and Exchange Commission relating to proxy voting by investment companies1 and is submitted on behalf of CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers"), a registered investment adviser for the CDC Nvest Funds, and CDC IXIS Asset Management Services, Inc. ("CDC IXIS Services"), the administrator of the CDC Nvest Funds2.
We support many aspects of the proposal, including the requirement to adopt written proxy voting policies and procedures. However, we are submitting this letter to express our opposition to the scope of the proposal and the disparate treatment under the proposal of investment companies as compared to other institutional investors. Additionally, we want to emphasize our disagreement with the Commission's estimate of the burden and associated costs the proposal places on investment companies.
We support the approach outlined in the comments of the Investment Company Institute; that is, requiring written proxy voting policies and procedures be adopted by fund boards and supervision by the board of the operation of such policies and procedures. We agree with the ICI's view that the Commission's objectives can be achieved without requiring public disclosure of actual votes or disclosure of "inconsistent" votes in shareholder reports. In fact, we believe the disclosure of votes cast and "inconsistent" votes will be costly and damaging to funds and will unnecessarily politicize proxy voting. Additionally, we have no evidence that fund shareholders have any interest whatsoever in information about actual votes.
We support requiring board approval of written proxy voting policies and board supervision of such policies. In fact, our current governance practices include review of written proxy voting policies and reports of votes cast.
We take exception to the implication in the proposal that funds are not sufficiently engaged with respect to proxy voting. The CDC Nvest Funds retain thirteen advisers or sub-advisers to actively manage the assets of the Funds and the voting of proxies is delegated to the money managers. Each adviser/sub-adviser maintains its own proxy voting policies and votes proxies for the CDC Nvest Funds in accordance with such policies. On an annual basis, each adviser/sub-adviser reports its proxy voting policies and votes cast. Through our due diligence oversight of the advisers and sub-advisers, CDC IXIS Advisers and CDC IXIS Services reviews the proxy voting policies of each manager and reports annually to the Board regarding both the policies and the votes cast.
The disclosure of proxy voting policies is not relevant to the investment decision, will be confusing and costly to shareholders and shareholders are not interested in the disclosure.
We do not believe that disclosure of proxy voting policies is needed in either the Prospectus or Statement of Additional Information. Proxy voting policies will not assist investors in making investment decisions; they are not essential to an investor making an investment decision - the threshold for prospectus disclosure. Additionally, while we do not patently object to disclosure of proxy voting policies in the Statement of Additional Information, we do not view it as necessary or appropriate given the lack of genuine shareholder interest in the information. In polling our shareholder servicing units, we have found no requests from shareholders over the past four years regarding these policies. The only entities that seem to be interested in this information are various special interest groups who are not our shareholders and who would not have to bear the costs of complying with the proposal.
The proxy voting policies of the CDC Nvest Funds' advisers/sub-advisers in some cases outline how certain types of proxy proposals are generally voted; however, they are flexible to allow each proposal to be considered based on the best interests of the fund. Several CDC Nvest Funds are managed by multiple sub-advisers. In these cases the disclosure would be especially confusing and irrelevant to the investment decision. Each sub-adviser employs its own proxy voting policies and procedures. It is foreseeable that different sub-advisers for a single multi-manager fund could have policies that vary on the same voting topic. These differing proxy voting policies would merely serve to confuse shareholders rather than present a clear picture of the voting position for the fund.
It is important to note that the costs of adding disclosure regarding proxy voting policies are significant. The disclosure would be lengthy, adding a considerable number of pages and requiring experienced legal staff and outside legal review. Beyond the baseline compliance costs for this disclosure, the cost of including it in the Prospectus is significantly higher than for the Statement of Additional Information because of the printing and mailing associated with the Prospectus as compared to the few requests we receive for the Statement of Additional Information.
Public disclosure of a fund's complete voting record would place a substantial burden on investment companies, impose significant additional costs and be detrimental to the interests of funds.
We strenuously object to the proposal to require each fund to publicly disclose its complete proxy voting record. This disclosure would place a substantial burden on investment companies. During 2001, the advisers/sub-advisers for the CDC Nvest Funds voted over 1,200 proxies containing more than 4,000 proposals. Disclosing detailed information for each fund on each proposal for each proxy received and voted would involve substantial staff hours and legal costs, especially in light of the multiple managers retained by the CDC Nvest Funds and the various vendors, voting processes and reporting formats employed by the thirteen advisers/sub-advisers. The Commission's cost estimate for complying with the voting record disclosure requirement seriously underestimates the effort required and fails to consider the costs associated with initially establishing processes to report votes cast, including in our case, the costs of aggregating the information for the sub-advisers.
As mentioned above, shareholders are not interested in receiving this kind of information. Proxy voting is of limited relevance and materiality to an investor's decision to invest in a fund and is even less meaningful to a shareholder's decision to maintain the investment. Fund shareholders hire the professional expertise of a money manager rather than invest directly, in part to lessen their responsibilities to attend to the minute details surrounding the investments made.
Disclosure of the fund's actual voting record will be harmful to the fund and its shareholders. Disclosure of a fund's voting record would subject the proxy voting process for funds to outside pressures from, among others, company management and special interest groups. While we expect advisers to be able to resist such pressures, it is not appropriate to politicize proxy voting in this way nor is it appropriate to subject advisers or funds to the conflicts of interest inherent in not having the ability to vote company proxies confidentially. Although not yet the norm, many publicly traded companies have adopted confidential voting, in many cases at the instigation of special interest groups of the type that contributed to rulemaking petitions that led to this proposal.
The proposal, if adopted, would eliminate tools fund managers often use to effect changes viewed to be in the best interests of shareholders (e.g., negotiating with management for corporate reforms, withholding support for a proxy proposal until management responds to concerns, extracting concessions from management in exchange for support of a proxy proposal) and would restrict their ability to influence company management through the proxy voting process. While no other type of investor would be required to forfeit the right to vote confidentially, fund managers would become exposed to the risk of retaliation by company management or special interest groups. This retaliation could take the form of restricted access to company management or information, which would put the fund at a disadvantage in evaluating the company's investment characteristics.
Additionally, retaliation by special interest groups may subject the fund or its adviser to activities that distract from their investment focus and severely harm funds and shareholders. It is not uncommon for special interest groups to target a company for public demonstrations in their efforts to extract concessions or force compliance with the group's viewpoint. The Commission must seriously consider the likelihood that this proposal could have broad and unintended consequences to funds, their shareholders and the securities markets generally. Consider this possibility: for its own purposes, a special interest group publicizes the proxy votes cast by several large fund managers, encouraging shareholders to express their disagreement by redeeming assets invested in the fund group. Such a campaign, if successful, will generate significant redemption activity and thus cause increased portfolio turnover as the fund manager is required to raise cash to meet redemptions. The unintended consequence of this proposal is markedly increased volatility in the equity markets and resulting tax consequences for both redeeming and non-redeeming shareholders.
Disclosing inconsistencies between the votes cast and the policies governing the proxy votes would limit the flexibility of investment companies regarding their voting practices and provide no benefit to fund shareholders.
We also strongly object to the requirement to disclose any inconsistencies between the votes cast and the voting policies and procedures of the funds. The requirement would discourage funds from using the flexibility available in their policies to vote contrary to the general voting guidelines according to the best interests of shareholders. The disclosure would detract from the important financial information provided in the reports. Also, the disclosure would inappropriately suggest that inconsistent votes are somehow improper when actually, the opposite is likely the case - the adviser is correctly exercising its fiduciary duty to vote according to its view of what is in the best interests of the fund and its shareholders.
The provision of this information would add to the costs and time associated with the review and filing of the semi-annual and annual reports but would not provide meaningful information to shareholders. Again, the Commission's cost estimate for complying with the proposal seriously underestimates the effort required for this aspect of the proposal and fails to consider relevant costs. The costs associated with analyzing differences between votes cast and voting policies, together with the costs of preparing and reviewing the required disclosure by senior legal or compliance personnel and/or outside counsel, and costs associated with certification if the disclosure must be certified by the CEO and CFO pursuant to Sarbanes-Oxley regulations, will be significant. Additional costs will be incurred to add this disclosure to shareholder reports, including printing and mailing costs. In weighing the cost/benefit of the proposal, these costs greatly overshadow any benefit, especially in a proposal so noticeably lacking in benefit to fund shareholders.
The proposal produces disparate treatment of investment companies - requiring funds alone among institutional investors to forfeit the right to vote confidentially and to disclose proxy voting policies, actual votes cast and "inconsistent" votes. Moreover, the proposal may exceed the scope of the Commission's authority.
We wish to voice our fundamental opposition to the application of the proposed requirements to investment companies (and to some degree, advisers to investment companies) while not subjecting other institutional investors to similar requirements. We are not suggesting that the Commission apply the proposed requirements to all institutional investors within its jurisdiction. Rather, our view is that the application to investment companies of the proposed requirements cannot be justified. The Commission attempts to rationalize the proposal as appropriate in part because of the benefit it will likely foster for all investors. However, it is not clear that the Commission's authority under the Investment Company Act would permit enacting regulations to achieve such a broad policy goal.
* * *
We appreciate the opportunity to comment on this proposal.
/s/ John E. Pelletier
John E. Pelletier
Senior Vice President/General Counsel, CDC IXIS Asset Management Advisers, L.P.
Executive Vice President/General Counsel, CDC IXIS Asset Management Services, Inc.
|1|| SEC Release Nos. 34-46518, IC-25739 (September 20, 2002); 67 Fed. Reg. 60828 (September 26, 2002)
|2|| CDC IXIS Advisers and CDC IXIS Services are affiliated with CDC IXIS Asset Management North America, L.P., which has assets under management of $130 billion as of June 30, 2002 and is part of CDC IXIS Asset Management, a global investment management firm with assets under management of $310 billion as of June 30, 2002.