Pass-through voting could present a more attractive and accessible approach to stewardship for pooled funds, although careful consideration and conscientious implementation of pass-through voting is “critical”, Tumelo has said.

Tumelo’s white paper argued that as the voting influence of fund managers has grown alongside the assets of the funds they manage, and pressure increases on their clients to take more control of stewardship, the current system is under increased scrutiny.

However, it noted that in anticipation of this scrutiny, the three largest fund managers in the world have already announced pass-through voting initiatives, "rewiring the voting system" so that beneficial owners of shares can instruct votes in proportion to the amount of the fund they own.

Indeed, pass-through voting allows an investor in a pooled fund to vote the shares in proportion to the assets under management (AUM) they have invested, with votes executed as a 'split' or 'partial' vote at the company annual general meeting.

Tumelo argued that the pass-through voting process could help create a more flexible solution to allows investors to separate voting strategy from investment strategy, noting that the lower fees and operational efficiencies make pass-through voting a more attractive and accessible option for pooled funds.

However, the report also warned that pass-through voting comes with regulatory challenges in different jurisdictions, requiring careful consideration of the fund manager’s fiduciary duty.

It stated: "The technical challenges of scale compound this: funds can hold thousands of companies and so, in theory, must send voting information to hundreds of thousands of investors.

"With the future of shareholder democracy at stake, careful consideration and conscientious implementation of pass-through voting is critical.

"Pass through voting may come with a lower cost than segregated mandates, but the success of its adoption will depend heavily on the conscientious implementation by technology providers and fund managers alike.

“Today’s system clearly could be better. There is a real need for greater transparency and alignment to ensure that fund managers can fulfil their fiduciary duty to their clients, and that their clients – retail and institutional investors – feel genuinely heard.

"With the future of shareholder democracy at stake, the industry needs to make more significant strides towards creating a more effective system.”

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