Cogent Consulting LLC, which institutionalized and automated the buyside allocation of "soft dollars" with its ResearchTrak(tm) product, today announced the development of ProxyTrak(tm) to automate the tracking and recall of shares on loan for institutional investors and the monitoring of material corporate events.
Cogent also announced it has signed its first ProxyTrak client -- one of the nation's largest asset managers, with more than $200 billion under management.
ProxyTrak was designed in response to the growing problem on Wall Street created when mutual funds, pension funds, hedge funds and trust companies need to quickly recall shares of stock they own, but have lent out, so they can uphold their fiduciary duty to vote proxies on material issues. Voting rights belong to those who hold the stock on a particular date of "record" that a company chooses in advance of its shareholder meeting. If shares are still lent out on that date, the owners of those shares are typically not able to vote them.
Robin Hodgkins, President and CEO of Cogent, said ProxyTrak combines the buyside firm's equity position data with the latest corporate action and securities lending revenue information into a powerful research, proxy administration and compliance tool. Each day, the firm's money managers can log into ProxyTrak via a secure, password-protected web interface and see, on a stock-by-stock basis, the number of shares owned, the amount that has been loaned out, upcoming material corporate actions related to their portfolio, and the record and event dates. Users can sort and filter the data any way they like, or, they can receive PDF reports based on any parameters requested.
"The best part is that at the click of a button, money managers can instantly request the recall of shares of a stock from their lending agent," Mr. Hodgkins said.
At many buyside firms that lend shares, this research/recall process is not routinely performed or performed manually - both of which can lead to having incomplete information or missing tight share recall deadlines. "Failing to have adequate processes and procedures in place for proxy voting as a result of securities lending can expose a firm to unnecessary risk," Mr. Hodgkins said. "ProxyTrak provides an invaluable service to the securities lending industry by allowing asset managers to continue receiving lending income during routine matters, but being able to quickly recall shares for short intervals needed to retain voting rights on material matters."
This recall problem has recently come to fore as a result of significant expansion of the stock lending business, which long-only institutional asset managers use to enhance revenues and hedge funds that short-sell borrowed stock use to enhance returns. The problem has been compounded by the increased number of proxy votes stemming from private equity buyouts of publicly traded companies, as well as the up-tick in hedge fund activism. Increased takeovers and activism have led to speculation that "empty voting" may be taking place, where a borrower votes shares in order to influence a proxy contest -- a practice that has come to the attention of the SEC.