New York City Pension Funds Report Calls 2023 ‘Difficult Year’ for Shareholder Proposals

The proxy voting season proved less fruitful in 2023 than in previous years for New York City’s five pension funds, particularly their climate-related proposals, in large part due to a “well-funded backlash” from conservative groups, according to the New York City Retirement System’s annual shareholder initiatives report.

The Office of the New York City Comptroller, which released the report and acts as an investment adviser to the NYCRS, submitted shareholder proposals to 32 portfolio companies in 2023 “that address[ed] a broad range of risks.” According to the report, the city’s pension funds withdrew approximately 47% of their shareholder proposals after successfully getting the companies to agree to take steps to implement the proposals. However, that is a significant drop from 85% in 2022.

“It was a difficult year for shareholder proposal proponents, whose efforts faced a well-funded backlash from conservative interest groups, Republican attorneys general, and state and federal legislators,” the report stated. “Republican presidential candidates made opposition to ESG [environmental, social and governance factors] and ‘woke investing’ a central pillar of their campaign messaging in 2023.”

Support for the New York City pension funds’ proposals that made it to a vote averaged 27%, down from 35% the previous year, which reflected declining support for shareholder proposals in general, according to the report. Climate change-related proposals were the least successful for the city’s pension funds, garnering only 13% support on average, while its proposals related to corporate governance and a fair and equitable workplace earned average support of 32% and 35%, respectively.

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“Generally, average support for proposals seeking corporate action or disclosure decreased significantly, to 21.8% in 2023, down from a high point in 2021 of 33.3%,” the report stated, citing the Sustainable Investments Institute. “Consistent with the Systems’ experience, ‘the erosion in support hit surging climate change proposals the hardest.’”

However, the report touted as a success the city’s shareholder proposal requesting the board of Starbucks commission and oversee a third-party assessment of the company’s adherence to its stated commitments to workers’ rights, including freedom of association and collective bargaining, which received 52% of the vote.

The report also cited a proposal requesting that the Wells Fargo board of directors prepare an annual public report on the effectiveness and outcomes of the company’s efforts to prevent harassment and discrimination, which received 55% of the vote.

“New York City’s pension funds are longtime leaders in meaningfully engaging with some of the largest companies to achieve real progress,” New York City Comptroller Brad Lander said in a release. “By pushing companies like Starbucks to respect workers freedom of association, Wells Fargo to prevent harassment and discrimination, and Fox to stop defaming people, we are helping to raise corporate governance standards and ensure a more inclusively thriving economy.”

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Tags: 2023 proxy voting season, anti-ESG, Brad Lander, conservative interest groups, ESG, New York City Comptroller, New York City Employees' Retirement System (NYCERS), New York State Common Retirement Fund (NYCRF), Shareowner Initiatives Postseason Report

Private credit is just getting warmed up. Noting that private credit funds have “blossomed” due to the retreat of traditional banks from lending after the global financial crisis of 2008 and 2009, consulting firm Oliver Wyman sees even greater expansion ahead.

This is the firm’s No. 1 prediction in its list, “10 Ideas for Asset Management in 2024.” It focuses on new international bank regulations, known as Basel III Endgame and due to take effect in July 2025. These regs are intended to bolster big lenders’ stability through tighter credit risks rules and bigger capital requirements. The accord has stirred controversy on Wall Street, however, where critics say the mandates for banks to hold more capital to offset potential risks are too stringent and unnecessary.

Regardless, the Oliver Wyman report found that the Basel plan would make private lenders even more successful. As a result, the firm concluded that the “golden age of private credit keeps shining.” The paper predicted that private credit funds will expand “beyond leveraged finance into broader corporate lending and asset-backed finance.”

The larger players will be the biggest beneficiaries of the trend toward greater use of private credit, Wyman suggested, because they have the “operational scale required to compete, as speed and certainty of execution, larger deal size and ability [will] bring more value to partnerships.”

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In a commentary, J.P. Morgan Private Bank argued that “ rapid growth of private credit assets under management suggests exuberance.” But the analysis discovered that this enthusiasm is not getting out of hand and loading extra debt onto the financial system: “Direct lending is not adding meaningful corporate leverage overall, but taking market share from other loan sources.”

No one doubts that this asset class is lucrative. Consider the $48 billion Blackstone Private Credit fund, known as BCred, targeting wealthy individuals and tracking the firm’s institutional fund. Three years since its inception, BCred has an annualized total return of 9.8% and a current yield of 10.5%.

A big reason for private credit’s popularity is how well the funds held up in 2022, when both stocks and bonds fell sharply. Private debt funds returned 4.2% in 2022, compared with declines of 18% for the S&P 500 index and 15.7% for investment-grade corporate bonds, according to PitchBook.

In a Moody’s analysis, a hypothetical scenario found that private credit had a material increase in tail losses, but can offer growth and improve a portfolio’s risk-adjusted returns, suggesting that the endeavor was worthwhile.

Not everyone is entranced by private credit’s allure: Caution is rising among some investors in the field. Christopher Ailman, CIO of the California State Teachers’ Retirement System, told Bloomberg recently that the pension plan’s 3% stake in private debt will grow only slowly, as interest rates are coming down—the advantage of private credit is that it tends to pay higher than many other kinds of debt. CalSTRS has been invested in private debt since at least 2010.

Additionally, Richard Daskin of RSD Advisors told Barron’s he is wary of private credit because investors might not be able to get their money out in a downturn.

Other predictions in the Wyman report include stepped-up acquisitions of insurers by private equity and other alternative asset managers; a huge opportunity for asset management in Japan as Tokyo loosens restrictions on starting new investment funds; and that asset managers will hatch fresh, innovative ways to develop new strategies, using artificial intelligence, that meet modern needs.