How well do voting choice policies represent investor preferences?

Asset managers face increasing political risk stemming from concerns that they prioritize their own interests when voting on behalf of investors. Using survey evidence and structural estimation, we provide early evidence on how well asset managers represent their investors by studying the ideological alignment between the two in the initial implementation of "voting choice policies." These policies allow investors in mutual funds and ETFs a limited menu of options to express their preferences on how fund managers vote their shares in corporate proxy contests. We conduct an original survey to measure investors' preferences on management and shareholder proposals and assess how well voting choice policies agree with these preferences. Using this survey data, we structurally estimate the ideological locations of investors and compare them to those of the voting choice policies. Our structural estimation includes ideological weighting to account for variation in relative importance of different ESG topics. We find that voting choice policies are clustered in the first and third dimensions of the ideological space. These correspond to left-right preferences and the willingness to implement socially conservative restrictions on the agency of the firm's managers. The addition of a simple new voting choice policy, which supports the positions of a majority of survey respondents, can increase investor-policy alignment.