Organisation name: Hong Kong Monetary Authority (HKMA)
Signatory type: Asset owner
Region of operation: Hong Kong SAR
Assets under management: US$539 billion
Why we monitor proxy voting practices of external managers
As Hong Kong’s central banking institution, manager of the Exchange Fund and a responsible investor, we believe that it is crucial to exercise our shareholder rights for our public equity holdings to help safeguard the long-term value of our investments.
We employ external fund managers to manage our listed equity portfolios. We aim to hire the best investment expertise available in the market to capture sustainable returns, benefit from diverse and complementary investment styles, and gain market insights. We recognise the importance of responsible corporate behaviour in creating long-term shareholder value and have established a mechanism to monitor our managers’ proxy voting practices and follow up with those we have identified as having questionable practices.
How we monitor proxy voting practices of external managers
Figure 1 depicts our process for monitoring external managers’ proxy voting processes. We collect proxy voting records from each external manager to assess whether votes have been cast for all resolutions and make follow-up enquiries if there is a high abstention rate, as we consider it important for the manager to voice its concern to company management using its votes as far as possible.
Even if the external manager has voted for the vast majority of, or all, resolutions, we examine the quality of these voting decisions against two criteria:
First, we check to see if the external manager has put in place guidelines setting out the principles underpinning its voting stance on various corporate governance issues, such as executive remuneration, capital structure-related matters and environmental issues, to ensure consistency of voting stance. We also look at whether it has procedures to deal with potential conflicts of interest, to prevent portfolio managers from voting (or not voting) based solely on short-term profit considerations that override serious ESG concerns.
Second, we assess incidents involving conflicts of interest to examine if they were properly managed by the investment manager. We also review whether there was an overwhelming level of support (in terms of percentage of votes cast) extended by the external manager to the company management when voting on company and shareholders’ resolutions. In assessing individual voting decisions, apart from checking that they are consistent with the manager’s voting principles, we reference the voting decisions of other managers on the same resolutions – effectively creating comparable benchmarks. Any voting decisions that seem to deviate from established policies, majority peer practices or general best practices will form the basis of our follow-up enquiry with the external manager.
Figure 1: HKMA’s process for monitoring external manager proxy voting practices
Examples: Pushing for improvements
Applying our proxy voting monitoring framework, we have been able to uncover questionable practices in some of our external managers and have sought improvements from them. Two examples are set out below:
 2019 FY