Managing Director, Investment Management Division
Goldman, Sachs & Co.
32 Old Slip
New York, New York 10005
Tel: 212 902-0879
Fas: 212 357-9001
December 6, 2002
Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered
Management Investment Companies: SEC File No. S7-36-02
Dear Mr. Katz:
This letter is submitted on behalf of Goldman Sachs Asset Management in connection with your request for comments on proposed regulations under the Investment Company Act of 1940 (the "1940 Act") that would require registered management investment companies ("funds") to provide disclosure about how they vote proxies relating to portfolio securities they hold. Goldman Sachs Asset Management serves as investment adviser to the Goldman Sachs Mutual Fund Family, which has current assets of approximately $103.5 billion. The proposed regulations were published in Release No. IC-25739 (the "Release").
In the Release, you have identified several objectives that the proposed regulations are intended to achieve. First, you believe that increased transparency of proxy voting by funds will enable fund shareholders to monitor their funds' involvement in the governance activities of portfolio companies, which could have a dramatic impact on shareholder value. Second, you note that recent corporate scandals have created renewed investor interest in issues of corporate governance and have underscored the need for funds to play more active roles in corporate governance. Third, you note that in some situations the interests of a fund's shareholders may conflict with those of its investment adviser with respect to proxy voting.
You propose to achieve these three objectives through various types of public disclosures. First, you propose to require funds to disclose in their statements of additional information the policies and procedures that are used to determine how to vote proxies relating to portfolio securities. This would also include disclosure of the procedures that are used when a vote presents a conflict between the interests of a fund's shareholders and those of various affiliated persons. Second, you propose to require each fund to file with you its proxy voting record and to make this record available to its shareholders. Third, you propose to require a fund to disclose in its annual and semi-annual shareholder reports information regarding any proxy votes that are inconsistent with the fund's proxy voting policies and procedures.
We believe that in considering whether these public disclosure proposals should be adopted, it is important that you consider whether these proposals are reasonably related to the objectives you wish to achieve, and whether your objectives would be better served by board of director disclosure and monitoring requirements. In this regard, we believe that only an attenuated correlation exists between your objectives and the public disclosure requirements you have proposed. On the other hand, we think a board of directors is the body that is best able to represent and protect a fund's interests, and is also the body whose participation is critical in order to achieve your stated objectives.
More particularly, most funds have retained investment advisers that have discretionary authority to manage the funds' portfolio holdings and to vote, on the funds' behalf, proxies related to those holdings. Like you, we believe that the voting of these proxies is part of the investment management process, and is normally a service undertaken by investment advisers for their fund accounts. Historically, boards of directors have monitored the portfolio management services provided by the investment advisers of their funds. We believe that, as part of these traditional oversight responsibilities, fund boards can also monitor effectively a fund's involvement in the governance activities of portfolio companies and can promote a fund's active role in corporate governance. In contrast, we think that while shareholders are best positioned to monitor their investments and make decisions with respect to investments in funds, shareholders are not in a position to provide effective investment adviser oversight on an operating basis. In addition, the proposed disclosure requirements will likely not materially change this. As an example, the public disclosure of a fund's proxy voting record will show only whether and how a fund voted on particular matters, no more or less. It will not show whether, or to what extent, a fund is involved in governance activities, and will not enable shareholders, as a body, to provide any guidance or oversight to an investment adviser.
Similarly, we believe a board of directors can provide effective oversight of an investment adviser's potential conflicts-of-interest with respect to proxy voting. Monitoring investment adviser conflicts-of-interest is already a primary responsibility of a fund's board of directors under the numerous regulations that you have previously adopted. Again, in contrast, fund shareholders normally do not, and cannot, monitor conflicts-of-interest. This is so even when shareholders know that conflicts exist (for example, when an investment adviser executes brokerage transaction through an affiliate).
For these reasons, we believe that the focus of your proposed regulations should be redirected from public (i.e., shareholder) disclosure of the specific voting record to board disclosure and monitoring. We wish to express our strong view that your proposed regulations relating to public disclosure of actual proxy voting records should not be adopted.
In our experience, our fund investors have rarely, if ever, expressed any interest in knowing about their funds' actual proxy voting records. We understand that our experience in this regard is similar to that of the fund industry as a whole. As you are aware, only a handful of fund groups currently publicize information about their proxy voting records, and those fund groups are relatively small. We believe that, if greater demand by public investors for this type of information, then either more fund groups would be currently making this information available or the groups that do would be larger. Neither of these things has happened, and it seems to us reasonable to conclude that the vast majority of fund investors do not place any importance on this type of information.
On the other hand, public disclosure of actual proxy voting records, as proposed, will result in substantial added costs for the fund industry since funds will be required, on a portfolio-by-portfolio basis, to compile, publish, retain and provide detailed data with respect to thousands of proxy votes relating to thousands of issuers over an extended time period. In the end, fund shareholders will bear these costs with very little apparent economic benefit to shareholders directly or indirectly, and further they will not be the beneficiaries of any greater protection because they will not be in a position to provide oversight or monitoring. In addition, this disclosure will potentially subject funds to the pressure tactics of special interest groups that may improperly want to use small fund investments to achieve non-investment related goals. As you noted in the Release, millions of individual American investors hold fund shares to finance their retirements, their children's education and other basic financial needs. We believe that the financial needs of these investors should not be burdened by unnecessary costs and placed at unnecessary risk by regulatory disclosure requirements that, as previously noted, do not seem best positioned to achieve its objectives.
We thank you for this opportunity to comment on your proposal.
cc: SEC Commissioners
Commissioner Cynthia A. Glassman
Commissioner Harvey J. Goldschmid
Commissioner Paul S. Atkins
Commissioner Roel C. Campos