Key Takeaways
- • The SEC has warned asset managers that coordinating activity to influence portfolio companies could subject them to the tougher Form 13D disclosure regime applied to activist investors, rather than the lighter Form 13G available to passive holders.
- • The warning follows an SEC investigation into BlackRock, Vanguard and State Street over their role in the 2021 ExxonMobil campaign, in which three directors were replaced after activist Engine No1 launched a board challenge.
- • The SEC stopped short of enforcement action but voiced "serious concerns" about some asset managers in the Climate Action 100+ coalition, and said the report is guidance ahead of the 2027 proxy season.
- • For hedge funds, the guidance raises the risk that large passive managers become more cautious about working alongside activists to assemble voting support for board changes and strategic campaigns.
Summary
The US Securities and Exchange Commission has warned asset managers that coordinating their activities to influence companies could expose them to the stricter disclosure requirements typically applied to activist investors, according to a report by the Financial Times. The warning follows an SEC investigation into the roles of BlackRock, Vanguard and State Street in the 2021 campaign that led to three ExxonMobil directors being replaced after activist hedge fund Engine No1 launched a board challenge.
The regulator did not take enforcement action against the firms. It did, however, state that it had "serious concerns" about the conduct of some asset managers participating in the Climate Action 100+ investor coalition. The SEC advised fund groups to be cautious about similar coordinated activity, warning that they could lose the regulatory treatment afforded to passive investors. An SEC official said the investors involved in the Exxon campaign appeared to have come close to crossing the line between passive investment and coordinated activism. The investigation examined whether BlackRock and State Street, both CA100+ participants, and Vanguard had coordinated their voting and engagement activities in a manner that could constitute a formal investor group.
The distinction carries direct consequences. Passive investors can generally report holdings on the shorter Form 13G, while investors deemed to be acting as activists or as part of a coordinated group may be required to file under the more demanding Form 13D regime. For activist hedge funds, which increasingly rely on institutional investors to build support for board changes, strategic reviews and other shareholder campaigns, the SEC's position could make large passive managers more reluctant to collaborate, potentially limiting the ability of hedge funds to assemble voting support.
The SEC said its report is intended as guidance for market participants ahead of the 2027 proxy season rather than a basis for further enforcement. BlackRock and State Street reportedly declined to comment, and Vanguard had not immediately responded to requests for comment.
The regulator did not take enforcement action against the firms. It did, however, state that it had "serious concerns" about the conduct of some asset managers participating in the Climate Action 100+ investor coalition. The SEC advised fund groups to be cautious about similar coordinated activity, warning that they could lose the regulatory treatment afforded to passive investors. An SEC official said the investors involved in the Exxon campaign appeared to have come close to crossing the line between passive investment and coordinated activism. The investigation examined whether BlackRock and State Street, both CA100+ participants, and Vanguard had coordinated their voting and engagement activities in a manner that could constitute a formal investor group.
The distinction carries direct consequences. Passive investors can generally report holdings on the shorter Form 13G, while investors deemed to be acting as activists or as part of a coordinated group may be required to file under the more demanding Form 13D regime. For activist hedge funds, which increasingly rely on institutional investors to build support for board changes, strategic reviews and other shareholder campaigns, the SEC's position could make large passive managers more reluctant to collaborate, potentially limiting the ability of hedge funds to assemble voting support.
The SEC said its report is intended as guidance for market participants ahead of the 2027 proxy season rather than a basis for further enforcement. BlackRock and State Street reportedly declined to comment, and Vanguard had not immediately responded to requests for comment.
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