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Blackwells' Disney accusation spotlights bad optics for fund managers

Mar 12, 2024
an illustration of an executive chair with a megaphone laying on it

Illustration: Tiffany Herring/Axios

Blackwells Capital, one of two hedge funds battling Disney, issued a press release and a presentation accusing the company of failing to disclose certain details with ValueAct Capital.

Why it matters: As it pursues Disney board seats, Blackwells is doing all it can to convince fellow investors that the disclosure flap is one of several knocks against sitting Mouse House directors.

Zoom in: Blackwells' report says ValueAct, the investment firm that bought a large stake in Disney and signed a deal promising to support its board and management team, also manages certain retirement funds at the company.

  • The crux of the hedge fund's case is that the company did not disclose that relationship when ValueAct joined Disney's side.
  • Blackwells' point is that ValueAct is supporting the same team that pays ValueAct hefty fees to oversee those retirement assets.

Reality check: The optics stink: Investors appear independent when saying "I support the leaders of this company," while, at the same time, quietly collecting sizable checks from the same crew.

  • And yet, this happens all the time. Fund managers tasked with voting proxies and choosing between the company and a dissident investor earn asset management fees from that company.
  • BlackRock, State Street and Vanguard — the three largest institutional investors in the world, and who own roughly 20% of most large U.S. companies — manage the retirement accounts at many of those same companies.

Zoom out: The issue Blackwells has raised is much larger and applies to the entire shareholder-fund manager dynamic.

  • Stewardship team leaders at these asset managers interviewed by Axios say that thick walls exist between their proxy voting teams and the retirement fund portfolio managers. If any stewardship member feels a perceived conflict could emerge, that member is recused from the vote, they say.
  • Still, the investor group As You Sow got agitated enough about this dynamic to put out a five-year study in 2021 calling out the inherent conflict.
  • As You Sow argued if a shareholder manages a company's retirement funds, they should either not vote the proxy, or agree to vote with the majority of other investors.

What we're watching: Blackwells' case is fair in terms of pointing out an awkward but prevalent dynamic that the public company investor world has stomached for decades. But this accusation will be met with a shrug, as it always has.

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