The number of activist investor actions on closed-end funds has increased fourfold since 2000. Much of that surge can be attributed to just three activist investors who have made it their business to target closed-end funds trading at a discount. According to data from ICI, the three investors were responsible for 87% of total closed end activism in 2024.
There are no signs these activists intend to veer from this strategy in 2025 or beyond. As a result, asset management companies will have to be prepared to face off with these firms in contested proxy votes in the event one of their funds comes into the activists’ crosshairs. This could include asset managers employing the closed-end format as a vehicle for increasingly popular illiquid or less liquid alternative strategies.
Asset managers who find themselves in this situation for the first time should understand that, although the odds are in management’s favor, there is a real chance they could suffer defeat if they make a misstep in what can be a surprisingly complex process. The truth is that asset managers who have never been through this before often don’t know what they don’t know about running a contested proxy vote.
Broadridge serves as the proxy vote processor for up to 500 closed-end meetings per year. With roughly 1% to 3% of those votes contested, we have been involved in hundreds of contested meetings over the past two decades. Drawing on our experience in these votes, we have created a Contested Proxy Checklist to help asset management first-timers and grizzled veterans alike navigate a contested proxy vote.
Contested Proxy Checklist
Asset managers coming into to a contested proxy vote should think of the process not as a typical proxy, but as a political campaign. And not just any political campaign, but a campaign in which voters can vote as many times as they want—but only the last vote counts. In many ways, that single rule defines the contest. Because shareholders can change their minds and recast their votes as often as they wish, both sides of a contested proxy vote need three things:
- Accurate, up-to-the-minute data on who has voted and how
- A campaign designed to convince shareholders to vote or change their vote to support management’s position
- A plan to successfully communicate campaign messages to shareholders at every stage in the process.
Asset managers will acquire those three elements from two sources: the proxy services provider who runs the contested proxy vote, and the solicitor they hire to manage their side of the campaign. It is critical to enter the contested proxy vote with a solid relationship with both parties, a deep understanding of how each partner operates, and a plan that fully leverages the capabilities of the provider and the solicitor alike.
Questions for Proxy Services Providers
The proxy services provider is the neutral party that operates and manages the contested proxy vote for both sides. This is the role Broadridge plays in a majority of the contested fund proxy votes held in the United States every year. Based on that experience, we recommend asset managers take the following steps in the run-up to a contested vote:
- Ask your proxy vote processor for a detailed breakdown of its control environment, audit procedures, and overall process for ensuring that votes are properly counted, time-stamped, tabulated, audited and reported to both sides.
- Find out how frequently you’ll get reports on voting progress as the process unfolds. You will need this timely information to know which shareholders have voted, which side they voted for, and which shareholders you should be targeting to get out or change their votes.
- Question your provider about its process for addressing anomalies in the voting process. What happens to ballots that are returned undermarked, marked multiple times, signed but unmarked, or unsigned?
Questions for Proxy Solicitors
The proxy solicitor is the firm that manages the actual campaign and helps convince shareholders to vote for one side or the other. To find the right partner and ensure success, asset managers preparing for a contested proxy vote should interrogate several solicitors about their experience running a campaign similar to the one they are about to launch:
- Ask the solicitor to outline their general approach to solicitation strategy. What is the campaign messaging and how will it be delivered?
- Drill down on the messaging. What are the specific arguments you will use to convince shareholders to vote for your side, or, critically, to switch their votes from the activist to you?
- Press your solicitor for insights into the investor base. New data analytics platforms and artificial intelligence solutions can provide a deep look into the shareholder base, giving asset managers a better understanding of individual shareholders and groups, and highlighting shareholders most likely to participate.
- Focus on communications strategy. One of the most important decisions an asset manager makes in preparing for a contested proxy vote is picking the channels it will use to communicate to shareholders. Will you use email, physical mail, telephone, or a combination of all three? How about social media and text? Who will receive each communication: shareholders who haven’t voted, those who have already voted for the other side, or everyone? Ask about the solicitor’s past engagements on email and mail campaigns, and, if relevant, make sure they have experience managing call center operations. Don’t forget design. Getting the attention of shareholders is crucial. Ask how solicitors use design capabilities to make their materials stand out and communicate messages clearly and simply. Ask to see past examples of proxy cards, email and mailing materials. Press the solicitor for opinions about the costs and benefits of using special packaging to make physical mail materials stand out and ask to see examples of successful designs they’ve used in the past.
Winning Strategies
Because contested proxy votes have been relatively rare, some asset managers who find their closed-end funds targeted by activists will enter the face off with little to no experience in this type of campaign. If that’s the case, take a deep breath. Asset managers usually have the upper hand against activists, as long as they get the basics right, don’t overlook any critical steps, and avoid mistakes that might cost them votes. To ensure your firm ends up on the winning side, pick your partners well, understand the strategies and capabilities of proxy service providers and solicitors, and be prepared to run your side of the vote less like a typical proxy and more like an aggressive and effective political campaign.