SEC Warns Asset Managers Over Activist Campaign Coordination

The U.S. Securities and Exchange Commission warned asset managers that coordinating activities to influence companies could subject them to disclosure requirements usually applied to activist investors.

The warning followed an inquiry into the 2021 ExxonMobil board contest, in which activist hedge fund Engine No. 1 challenged the company’s board. Three Exxon directors were replaced after the campaign.

The inquiry examined whether BlackRock, State Street and Vanguard coordinated their voting and engagement activities in a way that could have created a formal investor group. BlackRock and State Street participated in the Climate Action 100+ investor coalition, which focuses on corporate climate policies.

The SEC did not take enforcement action against the firms. The commission expressed “serious concerns” about the conduct of some asset managers involved in the coalition and urged fund groups to be cautious about similar coordination before the 2027 proxy season.

Asset managers that qualify as passive investors generally can report their holdings through Form 13G, which requires less information than Form 13D. Investors seeking to influence a company’s management or strategy, including those acting as part of a coordinated group, may have to file the more detailed Form 13D.

An SEC official indicated that the investors involved in the Exxon campaign appeared to have come close to crossing the line between passive investment and coordinated activism. The commission presented its findings as guidance for the market rather than as a basis for further enforcement.

The issue could affect activist hedge funds that work with institutional investors to support board changes, strategic reviews and other shareholder proposals. Large passive asset managers may face stricter disclosure requirements if their cooperation with activists is deemed coordinated activity.

BlackRock and State Street declined requests for comment. Vanguard did not immediately respond.